Tax CAF-02 | RANA NAVEED KHAN

Tax Practices| CAF-02

CHAPTER 01 TO 19
Chapter Wise Past Papers with Solutions
UPDATED UPTO SPRING-2022 ATTEMPT
Updated as per Revised Syllabus & Book by ICAP
Compiled By
Rana Muhammad Naveed Khan
CA(Final), LLB, MBA, M.Phil, MIPA(AUS), AFA(UK)

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Tax CAF-02 | RANA NAVEED KHAN

Chapter 01 | System of Taxation in Pakistan

1 The primary objective of a taxation system is to collect revenue. You are required to list Q7
the other objectives (non-revenue) which a taxation system can achieve. (10) (A-14)
2 ‘Besides financing government operational expenditures, taxation is also utilized as a Q7
tool to carry out the national objective of social and economic development.’ List any
five non-revenue objectives of taxation. (05) (S-16)

3 Taxes are primary revenue yielding tools of the Government of modern ages. You are Q5
required to state any three non-revenue objectives which the Government achieves by (S-18)
imposing taxation. (03)

4 (a) Briefly explain indirect taxes applicable in Pakistan. (04) Q7

(b) State one objective of tax laws in each of the following cases (A-18)
 Higher taxes on import of luxury goods
 Tax credit on donations to approved institutions
 Tax credit on investments
 Creation of tax free zones
 Tax on income of individuals and companies
 Tax on transactions not made through normal banking channel
 Zero rating under the Sales Tax Act, 1990. (06)
5 (a) Briefly discuss three broad principles for levy of taxes. (04) Q8
(b) Briefly explain any three indirect applicable in Pakistan. (05) ( A-19)
6 Q8
(a) Taxes are primary revenue yielding tools of the Government of modern (S-21)
ages. Stateany five ways by which taxes can be used for the development
of the country. (05)
(b) List six types of taxes which are covered within the legislative powers of
Provinces. (03)
7 a) State one objective of tax laws in each of the following independent cases: Q8
(i) High tax rate on import of goods (A-21)
(ii) Zero rating under the Sales Tax Act, 1990
(iii) Decrease in sales tax rate
(iv) Tax on cash deposit/withdrawal by non-filer
(v) Introduction of tax holiday period for construction related industries
(vi) High tax rate on interest income
(vii) Decrease in tax rate for online sales
(viii) Tax credit to persons employing fresh graduates
(ix) High tax rates on luxury items
(x) Allow expenditure on research and development (05)
8 State any four non-revenue objectives which the government achieves by imposing Q7
taxation. (03) (S-22)
Discuss any three principles of a sound tax system. (03)

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Chapter 02 | Constitutional Provisions on Taxes

1 (a) List the taxes which can be imposed by the Federal Government. (06) Q9
(b) Briefly describe the duties of National Finance Commission. (04) (A-14)
2 What do you understand by ‘Federal consolidated fund’? Enumerate the expenditures Q8
which are charged upon the Federal consolidated fund. (08) (A-15)
3 Under the provisions of Article 160 of the Constitution of Pakistan, briefly describe the Q7
formation of National Finance Commission. Who may be the member(s) of such (S-16)
Commission? (03)
4 List any five types of taxes which can be imposed by the Federation as provided in the Q7
Federal legislative list under the Constitution of Pakistan. (05) (A-16)
5 State the duties of National Finance Commission. (04) Q4
List the taxes and duties which may be raised under the authority of Parliament. Also list (S-17)
various types of taxes which are covered under the scope of legislation of the Provinces.
(06)
6 (b) List any five taxes which can be imposed by the Federal Government. (05) Q5
(S-18)
7 National Finance Commission has the duty to make recommendations to the President Q8
with regard to finance related matters. You are required to list such recommendations. (S-19)
(04)
State the taxes and duties which may be raised under the authority of Parliament. Also
state four types of taxes which are covered:
(i) under the scope of legislation of the Federation
(ii) under the scope of legislation of the Provinces. (06)
8 List six types of taxes which are covered within the legislative powers of Provinces. (03) Q8
(S-21)

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Chapter 03 | Ethics

1 Briefly explain the ethical responsibilities of the tax implementing authorities. (10) Q8
(A-14)
2 Briefly describe any three main canons of taxation which can be helpful in formulating a good Q8
tax system. (03) (A-15)
3 List any six ethical issues which may be faced by tax administration authorities while discharging Q7
their duties under the four pillars of tax administration. (03) (S-16)
4 List any seven responsibilities of tax administrators emanating from best ethical practices. (07) Q7
(A-16)
5 (a) Briefly describe the pillars/principles of tax administration which are meant to safeguard the Q8
interest of taxpayers and avoid abuse of powers by the tax administrators. (04) (A-17)
(c) List any six ethical issues that which administrators may face while discharging their duties.
(03)
6 (a) List any seven responsibilities of tax administrators arising from best ethical practices. (07) Q8
(b) State any six ethical issues which the administrators may face while discharging their duties. (S-20)
(03)
7 (a) Identify any four powers of the Federal Board of Revenue (FBR) with respect to collection of Q8
tax. What consequences may be faced by taxpayer if such powers are misused by any officer(s) (A-20)
of FBR? (03)
(b) Briefly explain any two pillars of tax administration which may be helpful in safeguarding the
interest of taxpayers and avoiding the abuse of powers by the tax administration. (02)

(c) List any six ethical issues which may be faced by tax administration authorities while
discharging their duties under the four pillars of tax administration. (03)
8 List the fundamental principles of ethics for tax practitioners. Also describe any one Q8
of the principles. (03) (A-21)

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Chapter 04 | Basic Concepts of Taxation

1 Under the provisions of the Income Tax Ordinance, 2001 explain the following: Q3
(a) Special tax year (03) (S-16)
(b) Transitional tax year (03)
(c) Order of application of various tax credits while computing the tax liability of the
Taxpayer (03)
(d) General provisions/rules which may apply to income subject to final tax. (06)
2 Under the Income Tax Ordinance, 2001 certain persons are required to pay minimum Q 2a
tax amounting to1% of their turnover from all sources. (A-17)
(a) Explain the term ‘Turnover’ for the purpose of determining the minimum tax. (05)
(b) List the persons who are required to pay minimum tax. (03)
(c) Discuss the provisions relating to carry forward of minimum tax paid to the
subsequent year. (02)

3 Discuss the residential status for tax year 2017 in each of the following situations: Q2
(i) On 21 September 2016 Asif proceeded to Dubai to join his new job. Due to certain (A-17)
professional issues with his employer in Dubai, he resigned on 1 May 2017 and came back
to Pakistan. On 16 May 2017 he got a new job in Pakistan which he continued till 30 June
2017. (02)
(ii) Sami Associates is an association of persons and provides accounting services in Dubai.
On 2 January
2017, the entire management and control of its affairs was shifted from Karachi to Dubai.
(02)
4 On 1 December 20X7 Bruce Lee was appointed by a Chinese company as a Q 3C
Technical Director forPakistan. He has provided you the following details: (S-18)
Arrival in Pakistan 15 December 20X7
Joined office in Pakistan 20 December 20X7
Visit to Dubai on an official trip 21-30 March 20X8
Visit to South Korea for vacations 12-21 April 20X8Visit to
northern areas of Pakistan for personal trip 4-9 June 20X8
In view of the provisions of the Income Tax Ordinance, 2001 and related Rules
thereunder, comment on the residential status of Bruce Lee for the tax year 20X8. (03)

5 Hirani & Company (HC), a resident AOP, is engaged in the manufacturing of various Q2
consumer products and is assessed under normal tax regime. During the year ended 30 (A-18)
June 20X8, HC’s sales was Rs.
14,000,000. It includes sales tax of Rs. 1,000,000 and excise duty of Rs. 500,000. The
taxable income for the year is Rs. 1,170,000.
Compute HC’s tax liability for tax year 20X8, under the provisions of the Income Tax
Ordinance, 2001. (Tax rates are given on the last page) (03)
6 Kaleem Limited (KL) is a listed company and its accounting year ends on 30 June. KL is Q 3A
now considering to change its accounting year from 30 June to 30 September. (A-18)
Under the provisions of the Income Tax Ordinance, 2001:

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a) briefly describe normal, special and transitional tax year. (06)

b) state the requirements regarding change in tax year from normal to special. (02)
c) state the tax year corresponding to the income year ended 30 September 20X8 and the
due date for filing the return of income. (02)
7 Mohsin has been working at the head office of Lewis Consulting, Inc. (LCI) situated in Q 2b
New York, USA. On1 January 20X8, LCI had established its branch office in Pakistan and (S-19)
had sent Mohsin for two years as Country Manager for looking after the Pakistan
operations.
During the tax year 20X9, apart from salary income, Mohsin earned/received the
following amounts:
 On 15 December 20X8, he conducted a seminar in USA for a fee of USD 18,000.
On his request, theevent manager transferred the amount (net of tax) directly to
his personal bank account in Islamabad on 10 January 20X9.
 On 31 May 20X9, he earned income from his business established in USA and
brought 40% of theincome to Pakistan.
Required:
Under the Income Tax Ordinance, 2001:
(i) state the residential status of Mohsin for the tax year 2018. (01)
discuss the taxability of his foreign source incomes for the tax year 20X9.(04)

8 Haider, a filer, was carrying on business as a cloth trader. On 28 October 20X7 there Q 2A
was a fire in his shop and the entire stock of clothes costing Rs. 1,550,000 was (S-19)
destroyed. The insurance company refused to pay the claim. Consequently, Haider
ceased his business on 31 January 20X8. After cessation of business, Haider filed an
appeal against the insurance company and was able to recover Rs. 1,300,000 as full and
final settlements from the insurance
company in tax year 20X9.
Required:
Under the Income Tax Ordinance, 2001:
(i) state the requirements that Haider should comply with, on cessation of his business
on 31 January 20X8. (03)
(ii) briefly discuss the treatment of the recovered amount in the tax year 20X9 (02)
9 Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, Q3
briefly explain. General provisions/rules which may apply to income subject to Final Tax (A-19)
Regime. (06)
10 Respond to the following independent scenarios, under the provisions of the Income Tax Q 3A
Ordinance, 2001: (A-19)
Jean Francois, a French designer, often visits to Pakistan for promotion of his products.
During his last visit he stayed in Pakistan from 10 July 20X8 to 25 February 20X9.
Determine the residential status of Jean Francois for tax year 20X9, assuming that the
Commissioner has granted him permission to use calendar year as special tax year. (02)

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Chapter 05 | Income from Salary

1 Munir resigned from his employment with Ali Industries Limited (AIL) with effect from 31 Q3
December 2017. He received following amounts in final settlement: (S-15)
• Rs. 150,000 as Leave Encashment.
• Rs. 4,000,000 under a Golden Handshake Scheme.
Munir had received a salary of Rs. 350,000 per month for a period of six months upto
December 2017. His taxable income and tax liability during the preceding five tax years
were as under:
Tax year 2010 2011 2012 2013 2014 Required:
Total 2,000,000 2,450,000 2,700,000 3,100,000 3,650,000 As a tax
taxable consultant,
income advise
(Rs)
Munir about
Total tax 300,000 392,000 472,500 542,500 650,000
paid the amount
of income
(Rs) tax payable
by him for the tax year 2015, under the Income Tax Ordinance, 2001. (06)

2 Under the provisions of the Income TaxOrdinance, 2001 Q 3c

compute taxable income or loss,under the correct head of (A-17)
income for tax year 2017, in each of the following cases:
a. Under an employee share scheme, 30,000 shares of Dawood Limited
were issued to Qamar, on 1 August 2013 for Rs. 30 each. According to the
scheme, he was not allowed to sell/transfer theshares before completion of
three years from the date of issue. The face value of each share is Rs. 10
per share. Fair market value of each share on different dates was as follows:
1 August 2013 30 June 2016 31 July 2016

Rs. 40 Rs. 30 Rs. 50

He sold 10,000 shares on 31 May 2017 for Rs. 65 per share. (04)
3 Under the provisions of the Income Tax Ordinance, 2001 compute taxable income or loss Q 2c
under correct head of income for tax year 20X8, in each of the following cases: (S-18)
Hasrat has been working as Director HR in Shakir Limited (SL) for many years. During the
tax year 2018 he received basic salary of Rs. 6 million. SL also contributed Rs. 50,000 per
month towards a recognized provident fund. An equal amount was contributed by Hasrat.
Interest income of Rs. 3,391,000 at the rate of 20% of accumulated balance of the fund
was credited to Hasrat’s account.
4 Sajid retired from Sun Chemicals Limited (SCL) as a marketing manager with effect from Q 5b
31 December 2019. He received the following amounts in final settlement from SCL: (S-20)
(i) Leave encashment of Rs. 600,000.

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(ii) Rs. 4,000,000 from unapproved provident fund. 50% of this amount was contributed
by Sajid.
(iii) Un-approved gratuity of Rs. 2,500,000.
He also acquired the vehicle, provided to him by SCL, at accounting written down value of
Rs. 500,000. The market value of the vehicle at the time of retirement was Rs. 2,000,000.
Required:
Under the Income Tax Ordinance, 2001 and Rules made thereunder, discuss the tax
treatment of the above benefits received by Sajid on retirement.
5 (b) Briefly explain the provisions of the Income Tax Ordinance, 2001 and Rules made Q 4b
thereunder relating to: (S-21)
(i) interest free loan provided by an employer to its employee for marriage of his/her
daughter. (02)
6 (a) On 31 December 20X1, Dr. Jamal resigned from his employment with Q 1a
General Hospital Limited. In January 20X2, he received following amounts in (S-21)
final settlement:
 Rs. 600,000 as leave encashment.
 Rs. 8,510,000 from recognised provident fund.
 Rs. 1,300,000 and Rs. 1,700,000 as salary arrears relating to tax year 20W9
and 20X0 respectively.

Dr. Jamal had received a monthly salary of Rs. 500,000 from July 20X1 to
December 20X1. His taxable income and tax liability during the preceding
four taxyears were as under:

Tax year 20W8 20W9 20X0 20X1

Total 2,800,000 3,200,000 3,800,000 4,800,000
taxable
income
(Rs.)
Total tax 359,500 404,500 300,000 630,000
paid(Rs.)
Required:
As a tax consultant, advise Dr. Jamal about the amount of income tax payable by him
for the tax year 20X2, under the Income Tax Ordinance, 2001. (07)

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Chapter 06 | Income from Property

1 (a) Q4
(i) Explain the term ‘Rent’ in context of ‘Income from property’. (02) (S-15)

(ii) Specify the head of income under which the following amounts would be chargeable to
tax:
• rent from sub lease of a building.
• amount included in rent for the provision of amenities, utilities and any other service
connected with renting of the building. (02)
(b)
On 1 July 2014, Fahim agreed to rent out a house to Mirza at a monthly rent of Rs. 180,000 with
effect from 1 August 2014 and received one year’s rent in advance. He also received Rs. 800,000
as a security deposit which was partly used to repay the security deposit amounting to Rs.
400,000 received from the previous tenant in July 2010 and partly used for renovation of the
house.
Fahim also incurred the following expenses in respect of the above house:
I. property tax of Rs. 15,000.
II. payment of interest amounting to Rs. 200,000 to his friend against amount borrowed for
renovation of the house.
III. insurance premium of Rs. 110,000.
IV. Rs. 5,000 per month to Wasif for collection of rent.
Required:
Under the provisions of the Income Tax Ordinance, 2001 compute the taxable income of Fahim
for tax year 2015 assuming he has no other income. (07)
2 On 1 July 2015 Farrukh borrowed Rs. 8,000,000 from Star Bank Limited and acquired a plot of Q4
land in Hub Industrial Zone for Rs. 6,500,000. He invested the rest of the loan in a business (A-16)
venture with his friend. The above loan carries mark-up at a rate of 12% per annum and is
repayable in eight equal quarterly instalments starting from 1 July 2016. On 1 August 2015
Farrukh decided to sell the plot of land to Zulfiqar Motors for Rs. 10,000,000 and received a
deposit of Rs. 500,000 from them. On 15 August 2015 Farrukh forfeited the deposit on refusal of
Zulfiqar Motors to purchase the plot of land.
On 1 September 2015 Farrukh let out the plot of land to his friend Atif at a monthly rent of Rs.
150,000. He received an un-adjustable deposit of Rs. 200,000 from Atif and paid Rs. 80,000 for
levelling the ground, Rs. 50,000 as ground rent, Rs. 12,000 as insurance premium against the risk
of damage or destruction by water logging and Rs. 140,000 against rent collection charges.
Farrukh had paid Rs. 25,000 to a firm of professional valuers which determined the annual rental
value of the plot of land at Rs. 2,160,000.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder,
compute under the relevant head of income, taxable income of Farrukh for tax year 2016. (12)
3 On 1 July 20X8, Zahid rented out his properties as follows: Q3

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1. An apartment was rented to Abdul Qadir at a monthly rent of Rs. 40,000. Zahid received (S-19)
a non- adjustable security deposit of Rs. 300,000 which was partly used to repay the non-
adjustable security deposit amounting to Rs. 175,000 received from the previous tenant in July
20X3. He also spent Rs. 20,000 on repairs of the apartment in February 20X9.
2. A bungalow was rented to a bank. Zahid and his younger brother are joint owners of the
bungalow in the ratio of 60:40 respectively. The annual rent agreed with the bank was Rs.
6,000,000 which is inclusive of Rs. 100,000 per month for utilities, cleaning and security. Zahid
paid Rs. 35,000 per month for providing these services.
Required:
Under the provisions of Income Tax Ordinance, 2001 compute total and taxable income of Zahid
for the tax year 20X9 under appropriate heads of income. (07)
4 (a) Explain the term ‘Rent’ with relation to ‘Income from property’. (02) Q2
(b) During the tax year 20X9, Amjad carried out the following transactions in respect of his (A-19)
properties:
1. On 1 July 20X8, Amjad purchased a factory building in Sukkur along with the installed
machinery at the price of Rs. 9 million and Rs. 3 million respectively. To manage the shortage of
funds of Rs. 2,000,000, he borrowed the same on 1 July 20X8 from his friend Shamshad through
a crossed cheque. The loan carries interest at the rate of 18% per annum.
On 1 January 20X9, he let out this building along with the machinery to Basit at a monthly rent of
Rs. 500,000 payble in advance.
2. On 1 July 20X8, Amjad let out his residential property situated in DHA Karachi to Mirza Limited
at a monthly rent of Rs. 300,000. Rent for the two years was received in advance on 1 August
20X8.
3. On 1 July 20X8, Amjad also entered into an agreement with Zeeshan for the sale of his plot
situated in Quetta for Rs. 50 million. The plot had been purchased for Rs. 40 million in 20X4.
Under the terms of sale agreement, he received Rs. 5 million at the time of signing the
agreement and the balance was to be received on 30 September 20X8. However, due to financial
difficulties, Zeeshan failed to pay the balance amount on the due date and consequently,
Amjad forfeited the advance in accordance with the terms of the agreement. On 10 April 20X9,
he finally sold the plot to Jamshed for Rs. 65 million.
4. Following expenditures were incurred by Amjad in respect of his properties in Sukkur and
Karachi:
Details of expenditures Property situated in
Sukkur Karachi
Repair & maintenance – building 270,000 70,000
Machinery 50,000
Ground rent 50,000 10,000
Insurance – building 150,000 20,000
Total 520,000 100,000
Required:
In view of the provisions of the Income Tax Ordinance, 2001 compute under appropriate head of
income, taxable income of Amjad for the tax year 20X9. (10)

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Chapter 7,8 | Income from Business

1 Under the provisions of Income Tax Ordinance, 2001, certain persons are required to pay Q5
minimum tax at the rate of 1.25% of their turnover. (S-14)
Required:
(a) Explain the term ‘Turnover’ for the purpose of minimum tax.
(b) List the persons who are required to pay minimum tax.
(c) Discuss the rules relating to carry forward of minimum tax paid to the subsequent years.
2 Under the provisions of the Income Tax Ordinance, 2001 what would be the cost of an asset for Q2
the purpose of depreciation deduction in each of the following circumstances? (A-15)
(i). Mr. Aamir acquired a new machine partly in exchange for an old machine. He paid freight to
bring the old machine to the seller’s location and also purchased cooling equipment which was
attached to the new machine for its smooth functioning.
(ii). Mr. Saulat acquired production machinery by utilizing a loan repayable in euro. The loan is
expressed in rupees and is repayable in two years’ time. Mr. Saulat also received 20% subsidy on
such machinery from the Provincial Government. (04)
(iii). On 1 July 2015 Mr. Talha started using his personal computer for business purposes. He also
had to upgrade the operating system to comply with his business needs.
(iv). Mr. Rahi constructed a furnace for his factory in Korangi Industrial Area. (12)
3 Akram has recently established an advertising agency in the name and style of Azad Advertising. Q2
For introducing his business to both international and local clients, he has allocated considerable (S-16)
chunk of his marketing budget to entertainment expenditures. Under the Income Tax Ordinance,
2001 and Rules made thereunder, advise Akram about the prescribed limits/conditions for the
deduction of entertainment expenditure. (07)
4 Under the Income Tax Ordinance, 2001 certain persons are required to pay minimum tax Q5
amounting to 1.5% of their turnover from all sources. (05) (A-17)
(a). Explain the term ‘Turnover’ for the purpose of determining the minimum tax.
(b). List the persons who are required to pay minimum tax. (03)
(c). Discuss the provisions relating to carry forward of minimum tax paid to the subsequent years.
(02)
5 Under the provisions of the Income Tax Ordinance, 2001 compute taxable income or loss, under Q3
the correct head of income for tax year 2017, in each of the following cases: (A-17)
(a). Sarwar Enterprises sold an immovable property for Rs. 50 million. The cost of the immovable
property was Rs. 30 million. Tax depreciation of Rs. 6 million had been allowed on the immovable
property up to the tax year 2016.
(b). Shams Industries Limited (SIL) sold and exported one of its plants to a Nigerian Company. The
sale proceeds received in SIL’s account amounted to Rs. 25 million. The cost and tax written down
value of the plant was Rs. 20 million and Rs. 7 million respectively.
6 Under the provisions of the Income Tax Ordinance, 2001 compute taxable income or loss under Q2
correct head of income for tax year 20X8, in each of the following cases: (S-18)
(i) Shaoor is the sole proprietor of Shaoor Enterprises (SE). On 31 January 20X8 SE sold a factory
building including land for Rs. 10 million. At the time of disposal, the fair market values of the land

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and building were Rs. 3 million and Rs. 5 million respectively. The land and building were acquired
on 1 July 20X6 at a cost of Rs. 2 million and Rs. 6 million respectively. The tax WDV of the building
on 1 July 20X7 was Rs. 5.4 million.
7 Identify any three situations in which the fair market value of the assets shall be treated to be the Q5
cost of the asset. (03) (A-19)
(b) During the tax year 20X9, Salman Shahid sold the following assets:
(i) A vehicle used by manager-in-charge of his garment factory for Rs. 2.8 million.
The vehicle was purchased for Rs. 3.1 million in tax year 20X6. (03)
(ii) A machine for Rs. 350,000 on 1 June 20X9, which he had imported from Malaysia for Rs.
1,900,000 on 1 May 20X9, to start a new business. The machine was badly damaged during the
shipment from Malaysia, rendering it unfit for use. He received insurance claim of Rs. 1,840,000
as damages on 15 May 20X9. Charges incurred in connection with the submission of claim with
insurance company were Rs. 38,000. (03)
8 Following transactions pertain to Salam Limited (SL) which took place during the tax year 20X9: Q 3b
(i). A machine costing Rs. 1,800,000, being used in SL’s Karachi factory was transferred to its (S-19)
subsidiary in Ghana. The fair market value and tax written down value of the machine on the date
of transfer were Rs. 2,500,000 and Rs. 600,000 respectively. (02)
(ii). On 1 January 20X9, SL entered into a forward contract for the purchase of raw materials to be
used in its business to guard against loss through price fluctuations. On the date of maturity of the
forward contract, SL did not take the delivery of the raw materials but the contract was settled by
making a payment of Rs. 500,000. (03)
Required: Explain the taxability of the above transactions.
9 Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, discuss: Q3
(a) the prescribed limits/conditions for the deduction of entertainment expenditure. (06) (S-20)
(b) who is required to file the foreign income and assets statement? Also state the particulars to
be included in such statement. (05)
(c) the concept of ‘Concealed asset’ and state the powers of the Commissioner relating to
concealed asset of any person when it is impounded by the Federal Government.(05)
10 Differentiate between deductible allowances and admissible deductions. Give three Q 3b
examples of each. (06) (A-20)
11 State the provisions of the Income Tax Ordinance, 2001 relating to each of the following: Q 3a
(i) Change of tax year from special to normal (02) (A-21)
(ii) Change in the method of accounting for income chargeable to tax under the
head ‘income from business’ (03)
12 Under the provisions of the Income Tax Ordinance, 2001 discuss the tax implication/treatment in Q 2a i
each of the following independent matters: (S-22)
(i) Purchase of immovable property in cash. (03)
13 For the purpose of this part of the question, assume that the date today is31 Q 2b
August 2022. (S-22)
During the year ended 30 June 2022, Faster & Co. (FC) started a new project.
Following information is available:
 Incurred Rs. 5 million on feasibility study of the project.

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 Obtained a 3% loan of AED 2 million from a UAE bank on 1 January 2022 for the
purchase of plant and machinery. The interest is payable annually and principal
amount is repayable at the end of third year.
 Installed the plant and machinery at a cost of Rs. 150 million on 14 March 2022. The

exchange rates of 1 AED to PKR on different dates are as follows:

Average
1-Jan- 30-Jun- between
2022 2022 1-Jan-2022
to30-Jun-
2022
Rs. 50 Rs. 55 Rs. 53
Required:
Compute the amount of allowable deduction in determining the taxable income of FC
for tax year 2022. (04)

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Chapter 9 | Income from Capital Gain

1 (a) Q4
What do you understand by the terms ‘Security’ and ‘Derivative products’ as provided in the (A-15)
Income Tax Ordinance, 2001 and Rules made thereunder? (03)
(b)
Under the provisions of the Income Tax Ordinance, 2001 compute taxable gain or loss, under the
correct head of income, in each of the following cases. Also identify, giving reasons, whether the
company is a public or private company for tax purposes:
(i) Ashiq has 5,000 shares in Rumi (Pvt.) Limited (RPL). 52% of the shares of RPL are held by Delta
Plc. which is owned by the British Government. Ashiq inherited these shares from his father on 1
January 2014. His father had purchased these shares on 31 May 2012 at a price of Rs. 250 per
share. The market value of these shares at the time of inheritance was Rs. 300 per share. On 30
June 2015 Ashiq sold 2,500 shares in RPL at a price of Rs. 325 per share when the break-up value
of RPL was Rs. 350 per share. (04)
(ii) What would be your answer in (i) above, if 40% of the shares of RPL were held by the
Provincial Government, 48% by the British Government and 12% by individual investors. (03)
2 Saleha is a resident person. She disposed of the following assets during the tax year 20X7. Q 2b
(i) A painting which she inherited from her father was sold for Rs. 1,250,000. The market value (S-17)
of the painting at the time of inheritance was Rs. 1,550,000. The painting was purchased by
her father for Rs. 1,000,000. (02)
(ii) She sold jewellery for Rs. 2,300,000 which was purchased by her husband in March 20X5 for
Rs. 1,300,000 and gifted to her on the same date. (02)
(iii) She disposed of her car for Rs. 1,800,000. The car was being used for the purposes of her
business. The tax written down value of the car at the beginning of tax year 20X7 was Rs.
1,600,000. The rate of depreciation for tax purposes is 20%. (02)
(iv) On 20 October 20X6 she sold a dining table to Faheem for Rs. 18,000 which she had
purchased on 15 May 20X5 for Rs. 15,000 for her personal use. (02)
Required:
Under the provisions of the Income Tax Ordinance, 2001, discuss the taxability of each of the
above transactions in the context of capital gain/loss.
3 Najam had purchased a house in 20X2 for Rs. 20 million. Q 3b
On 1 July 20X6, Najam entered into an agreement with Zameer for sale of the house for Rs. 25 (S-17)
million. As per the terms of the agreement, Najam received Rs. 5 million on the day the contract
was signed and balance amount was to be paid on 30 September 20X6. However, due to
financial difficulties, Zameer failed to pay the balance amount on the due date and consequently,
Najam forfeited the advance in accordance with the terms of the agreement.
On 15 February 20X7 Najam sold the house to Farid for Rs. 30 million.
Required:
Advise Najam about the taxability of the above transaction under the Income Tax Ordinance,
2001. (04)

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4 Zaheer sold a painting to his brother on 10 April 2017 for Rs. 2,000,000. Zaheer had purchased Q 3b
this painting for his residence, in an auction on 14 August 2013 for Rs. 1,800,000. (02) (A-17)
5 Haris sold two of his personal vehicles during the current year and earned profit of Rs. 550,000. Q 3b
Discuss the taxability of profit earned by Haris in the context of capital gain/loss. (02) (A-19)
6 Respond to the following independent situations, under the provisions of the Income Tax Q 4b
Ordinance, 2001: (S-20)
On 1 July 2014, Ahmed purchased two sculptures for Rs. 410,000 and Rs. 475,000 respectively.
On 30 November 2019, during the shifting of his house, he lost both the sculptures. On 15
January 2020, he received insurance claim of Rs. 940,000 in a single transaction against the loss
of two sculptures. The fair market value of both the sculptures at the time of loss was estimated
at Rs. 360,000 and Rs. 540,000
respectively. Compute Ahmed’s taxable income or loss for the above transaction.(04)

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Chapter 10 | Income from Other Source

1 On 1 June 20X6 Dawood and Dewan jointly purchased a bungalow for Rs. 35 million. Q 3a
They paid the amount in the ratio of 65:35 respectively. To arrange funds for the deal, Dawood (S-17)
borrowed Rs. 3,000,000 in cash from Shameem who is in the business of lending money. The rate
of interest is agreed @ 20% per annum.
On 1 July 20X6, the house was let out to a company at annual rent of Rs. 4,500,000 inclusive of an
amount of Rs. 75,000 per month for utilities, cleaning and security. For providing these services
Dawood and Dewan paid Rs. 35,000 per month. During the tax year 20X7 they also paid Rs. 10,000
as collection charges and Rs. 230,000 for administering the property.
Required:
Compute taxable income of Dawood and Dewan under appropriate heads of income
for the tax year 20X7. (08)
2 Respond to the following independent situations, under the provisions of the Income Tax Q 4a
Ordinance, 2001: (S-20)
During the tax year 2020, Sadiq received a flat as gift from his uncle, Mumtaz Alvi.
The flat was located in posh area of Lahore and its fair market value at the time of gift
was Rs. 4.5 million. Discuss the tax treatment of the flat received by Sadiq. (02)
3 Farheen is a resident filer and has provided following information pertaining to tax year 2020: Q 4a
(i) She owns a bungalow situated in Multan which was given on rent to Abbas under a (A-20)
rental agreement of five years which expired on 31 March 2020. Details of payments
received as per the rent agreement are given below.

Rent Rs. 175,000 per month

Security guards’ salaries Rs. 50,000 per month
Non-adjustable security deposit Rs. 2,500,000

On expiry of the rental agreement, Farheen refunded the security deposit to Abbas and rented out
the bungalow to a new tenant Zafar on the same terms and conditions.
Farheen pays Rs. 40,000 per month to a security services company which provides security guards
at the bungalow.
(ii) She owns a residential plot in Karachi. On 1 March 2020, she decided to sell
the plot to Mehreen for Rs. 2,200,000 and received a deposit of Rs. 220,000.
On 1 June 2020, she forfeited the deposit on refusal of Mehreen to purchase
the plot.
(iii) On 1 December 2017, she had acquired a furnished office on monthly rent
of Rs. 5,000 for her own use and had paid a non-refundable amount of Rs.
2,000,000 to the previous tenant for vacating the office. During the year,
she received an offer of Rs. 2,400,000 from Shehroz to vacate this office
which she accepted and received the amount on 1 March 2020.

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(iv) On 1 October 2019, she inherited a factory with plant and machinery from
her father and let it out on 1 December 2019 at a monthly rent of Rs.
500,000.
(v) Legal and professional charges of Rs. 40,000 were paid for preparation of
rental agreements.
(vi) On 15 November 2019, she received income tax refund of Rs. 180,000
related to tax year 2017. This amount included Rs. 30,000 being additional
payment on delayed refund.

Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, compute
the total income of Farheen under appropriate heads of income for the tax
year 2020. (07)

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Chapter 11 | Losses, Deductible Allowances, Tax Credits & Exemptions

1 State the rules relating to set-off and carry-forward of losses of AOP and its members. (02) (S-15)

2 Discuss the provisions of the Income Tax Ordinance, 2001 regarding set off and carry forward of Q 4c
losses under the following heads: (S-18)
(i) Income from business. (05)
(ii) Income from speculation business. (04)
3 Nadeem has agricultural land in Thatta which is being used for the cultivation of sugarcane. Q 4a
During the year, he cultivated 200,000 tons of sugarcane. Out of total cultivation, 140,000 tons (S-18)
of sugar cane was sold to a sugar mill at a price of Rs. 4,550 per ton whereas the remaining
quantity was utilized in his own sugar mill. During the year, there were no other purchases of
sugar cane by his sugar mill. The sale of his sugar mill stood at Rs. 310 million whereas total
expenses other than the raw material amounted to Rs. 19 million. There was no opening and
closing stock of sugarcane.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, compute
the taxable income of Nadeem for the tax year 20X8. (04)
4 Jamil and Company (JC) is the sole trader of a branded tea in Pakistan. In addition to Q 3c
the trading business, JC is also engaged in forward purchasing and selling of tea to reap (A-18)
the benefits of price fluctuation in local and international markets. Following
information has been extracted from therecords of JC for the year ended 30 June 20X8:
(i) Detail of trading and speculation businesses (forward purchase and sale) were as
follows:

Trading business Speculation business

------ Rs. in million ------
Gross revenue 400 200
Gross profit 20 10

(ii) Total administrative and general expenses for the year amounted to Rs. 7.2 million.
This amountincludes a penalty of Rs. 0.4 million paid to the custom authorities.
(iii) Assessed carried forward losses from previous years are as follows:

Rs. in million
Losses from trading business 12.8
Losses from speculation business 9.6
Capital losses (incurred in 20X2) 2.0

Under the Income Tax Ordinance, 2001 and Rules made thereunder, compute JC’s taxable
income / (loss) and the amount of loss to be carried forward, if any, for the tax year 20X8. (06)
5 Differentiate between deductible allowances and admissible deductions. Give three examples of (A-20)
each. (06)

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6 On 1 July 20X1, Mrs. Ahmed separated from her spouse and decided to live apart Q 4a
with her six years old son. Below are the extracts of clauses from the agreement (S-21)
tolive apart:
(i) Mr. Ahmed will pay Rs. 50,000 in cash every month to his spouse.
(ii) Mr. Ahmed will continue to pay his son’s monthly school fee of Rs. 10,000.
(iii) Mr. Ahmed will transfer the ownership of a shop in her spouse’s name.
The shop was already in use by a tenant at a monthly rent of Rs. 88,000.
Mrs. Ahmed will be entitled to receive the rent from the date of transfer
of ownership in her name.

On 1 September 20X1, the ownership of the shop was transferred in her name.
Required:
Under the provision of the Income Tax Ordinance, 2001 briefly explain the tax
treatment of the above arrangement in the income tax return of Mrs. Ahmed for the
tax year 20X2. Also specify the head of income under which each of the above
Receipts will be classified. (04)
(Computation is not required)

7 Briefly explain the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder Q 4b
relating to: (iii)
order of application of various tax credits if a taxpayer is allowed more than (S-21)
one tax credit for a tax year. (03)
8 Following information pertains to Ms. Ayesha for the tax year 2021: Q 2b
Rs. in million (A-21)
Income from non-speculation business 15.0
Income from property 3.0
Gain on sale of jewelry 2.5
Gain on sale of listed securities 4.0
Loss from speculation business (4.5)
Loss on sale of shares of a private company (3.6)
Loss on sale of antique (1.6)
Loss on sale of listed securities (6.0)
Loss from agriculture (8.0)
Loss from other sources (19.0)

Required:
Under the Income Tax Ordinance, 2001, discuss how the above losses can be set off
against her aforesaid incomes. Also discuss the amount of losses that can be carried
forward for adjustment against her future incomes. (08)
9 List the persons or incomes that are allowed a tax credit equal to 100% of the tax payable. Q 2c
Also specify the conditions/limitations which are required to be fulfilled for availing the said tax (S-22)
credit. (Ignore tax credit available to charitable organization) (04)

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10 Under the provisions of the Income Tax Ordinance, 2001 discuss the tax Q 2a
implication/treatment in each of the following independent matters: (iii)
Profit on debt received by a non-resident person on a security issued by a resident person. (S-22)
(03)

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Chapter 12 | Taxation of individual and association of persons

1 Baqir, Asad and Rahi are members of an association of persons (BAR) and share Q8
profits and losses in theratio of 5:3:2 respectively. BAR is engaged in the business (S-16)
of trading consumer electronics and has two independent branches one each in
Tehran and Dubai. Following information has been extracted from BAR’s profit and
loss account for the year ended 31 December 2015:
Rupees
Sales 30,000,000
Cost of sales (20,500,000)
Gross profit 9,500,000
Administrative and selling expenses (4,732,000) .
Financial charges (980,000)
Other income 1,700,000
Profit before taxation 5,488,000
Additional
information:
Cost of sales
includes:
 Closing stock which has been valued at net realizable value of Rs.
1,820,000. The cost of closingstock under absorption costing was Rs.
1,950,000.
 Provision of Rs. 75,000 against slow moving stores and spares.
 Freight charges of Rs. 160,000. These were paid in cash to
Momin Goods Transport fortransporting goods to customers in
Multan.
Administrative and selling expenses include:
 Commission of Rs. 290,000 paid to Baqir, annual performance award of Rs.
310,000 paid to Rahiand Rs. 455,000 paid to AB Bank Limited in final settlement
of a loan obtained by Asad for the construction of his house in Muree.
 Provision for bad debts of Rs. 735,000. The opening and closing balances of
provision for bad debts amounted to Rs. 1,100,000 and Rs. 1,435,000
respectively. Bad debts written off include aloan of Rs. 280,000 provided to a
supplier.
 Sales promotion expenses of Rs. 275,000. These expenses were paid by
Rahi through hispersonal credit card.
 Rs. 86,000 paid to an institution operated by Federal Government for the
training of industrialworkers in Punjab.
Further information:
For the year ended 31 December 2015 Dubai branch made a profit of Rs. 1,500,000 and Tehran
branchmade a loss of Rs. 1,800,000. These figures are not included in the above profit and loss
account.
Required:

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Under the provisions of the Income Tax Ordinance, 2001 and Rules made
thereunder, compute the taxable income, net tax payable by BAR and the amount
to be carried forward, if any, for tax year 2016.Assume tax and accounting
depreciation is same. (12)
Note:
 Your computation should commence with the profit before tax figure of Rs. 5,488,000.
 Show all relevant exemptions, exclusions and disallowances.
2 Under the provisions of the Income Tax Ordinance, 2001 describe the following: (A-16)
(i) meaning of the term ‘Associates’. (02)
(ii) circumstances in which a member of an association of persons and the association may be
regarded as associates. (02)
(iii) situation in which members of an association of persons may not be regarded as associates.
(02)
3 The Income Tax Department initiating a proceeding against Mobeen, issued a demand note Q 3a
requiring him to pay the outstanding amount of his tax liability for tax year 2015 along with (A-16)
default surcharge. However, before settlement of his tax liability, Mobeen died in a car accident.
Required:
Under the provisions of the Income Tax Ordinance, 2001:
(i) Describe whether tax authorities would be able to recover the amount of tax after Mobeen’s
death and what would be the extent of such recovery. (03)
(ii) Comment on the status of the proceedings initiated against Mobeen. (02)
4 (a) Mustafa, Ali and Zain are partners of a resident firm in Pakistan, under the Q1
name and style MAZ Enterprises (MAZE) which is engaged in manufacturing and (S-19)
local supply of auto spare parts. All partnershave equal share of profits and losses
in the firm.
Following information has been extracted from accounting records of MAZE for the tax year
20X9:

Rs. in '000
Sales 140,400
Cost of goods sold (91,260)
Gross profit 49,140
Administrative and selling expenses (21,430)
Financial charges (15,740)
(37,170)
Other income 1,900
Profit before tax 13,870

Additional information:
(i) The above accounts have been prepared on cash basis and stock-in-
trade has been valued on the prime-cost method. However, the
partners want to change the method of accountingfrom cash basis to
accrual basis. In this respect, following information has been gathered:

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Opening balances Closing balances

--------- Rs. in '000 ---------

Stock-in-trade using prime-cost method 5,200 7,500
Stock-in-trade using absorption-cost method 5,900 8,800
Cost of goods sold includes cost of used machinery imported from China on 31
July 20X8 amounting to Rs. 2,110,000. The cost includes payment of custom
duty of Rs. 90,000 andincome tax of Rs. 110,000 to the Collector of Customs.
 Administrative and selling expenses include:
 payment of Rs. 380,000 to a local hotel for holding annual eid-
milan party for theemployees, key customers and their families.
 payment of a fixed monthly remuneration of Rs. 150,000 to each partner.
 payment of Rs. 180,000 for purchase of accounting software on 1
January 20X9. Thesoftware is expected to be used for fifteen years.
 Financial charges are net of interest income of Rs. 360,000 (net of tax @
10% deducted bythe bank), earned by the firm on its savings accounts.
Required: Under the provisions of Income Tax Ordinance, 2001 and Rules made thereunder,
compute the total income, taxable income and tax payable by MAZE using accrual basis of
accounting. (10)
Note:
Show all the relevant exemptions, exclusions and disallowances.
Tax rates are given on the last page.
(b)
Besides the share of income from MAZE, Zain has received the following amounts from his
employmentwith Hasan Pakistan Limited (HPL) during the tax year 20X9:
A monthly salary of Rs. 200,000.
(i) Reimbursement of Rs. 350,000 for actual cost of medical services for him and his
dependents, froman insurance company, under the health insurance policy.
On 31 March 20X9, he purchased a car from HPL for Rs. 110,800. The market value of this
car on 31March 20X9 was Rs. 250,000.
Required:Compute the total income, taxable income and tax liability of Zain for the tax year
20X9. (Tax rates are given on the last page) (07)
5 Abid is the legal representative of his grandfather since his death on 10 July 20X7 and Q 4c
manages his estate worth Rs. 28 million. On 22 January 20X9, he received a notice from the (S-19)
Income Tax Department requiring him to make payment of Rs. 0.8 million against his
grandfather’s income for the tax year 20X7.The notice also required him to submit details of
his grandfather’s income for the tax year 20X8.
Required:
Advise Abid about his obligations relating to the tax assessment proceedings pending/arising
against his grandfather. (05)
6 Farhan, Kamran and Rehan are members of an association of persons (AOP) and share its Q2
profit and lossin the ratio of 2:2:1 respectively. (S-20)
Following information is available with regard to AOP and its members for the tax year 2020:
(i) During the year, AOP earned a profit before tax of Rs. 2,000,000 after making following

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payment to itsmembers:
Farhan Kamran Rehan
------------------ Rupees ------------------
Salary 1,000,000 800,000 600,000
Interest on capital 500,000 400,000 300,000

(ii) Kamran is running a business as a sole proprietor from which he earned Rs. 800,000.
Kamran is also amember of another AOP where his share of profit or loss is 60%.
During the year, the other AOP incurred a loss after tax of Rs. 350,000 and paid Rs. 150,000
on accountof income tax.
(iii) Rehan received net dividend of Rs. 102,000 from a listed company after deduction of
withholding tax@ 15%.
(iv) Farhan has no other source of income.
Required:
Under the provisions of the Income Tax Ordinance, 2001 compute taxable income and tax
liability of AOP and each of its members for the tax year 2020. (11)
7 Libas & Co. is an association of persons (AOP) with three members, Saba, Junaid and Akram, Q2
sharing profit and loss in the ratio of 1:1:2 respectively. (A-20)
During the year, AOP earned profit before tax of Rs. 8,500,000 from its principal business
i.e. trading of garments. In addition, AOP is also involved in purchase and sale of following
securities listed on the Pakistan Stock Exchange:

Name of Details of purchase Details of sale

investee Date No. of Price Date No. of Price
company shares per shares per
share share
(Rs.) (Rs.)
XOK Limited 1 Oct 2016 200,000 200 29 June 2020 200,000 225
[Note A]
PBB Limited 18 Aug 2017 55,000 145 20 Dec 2019 100,000 180
10 Jan 2018 100,000 150
OOI Limited 15 Feb 2020 150,000 86 15 March 2020 150,000 78
[Note B]
Note A: Sale proceed from disposal of these shares was credited to the AOP’s bank account on 2
July 2020.
Note B: Due to shortage of funds for making this purchase, AOP borrowed Rs. 5,000,000 in cash
from Imran, who is in the business of lending money at 15% per annum.
Other information related to Saba:
(i) During the year, she earned Rs. 1,500,000 by working as a freelance photographer.
(ii) On 1 April 2020, Saba received Rs. 1,100,000 from Zafar in full settlement of a loan. The loan
was provided on 1 April 2019 at 10% per annum interest through proper banking channel.
Required:

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Under the provisions of the Income Tax Ordinance, 2001, compute taxable income and tax
liability of AOP and Saba for the tax year 2020. (13)
8 Kamkaj & Co. is an association of persons (AOP) with three members namely Baqir, Q5
Omer and Sadabahar (Pvt.) Limited (SPL), sharing profit and loss in the ratio of (A-21)
20:30:50 respectively.

Following information is available with regard to AOP and its members for the tax
years2020 and 2021:

AOP’s income for tax years 2020 and 2021:

2020 2021
---------- Rupees -----------
Income from business* (18,000,000) 25,000,000
Dividend income - 4000,000 *Net of
annual fixed commission of Rs. 7,000,000 to SPL
On 1 February 2021, Baqir earned capital gain of Rs. 5,200,000 on sale of his
propertywhich was purchased on 1 January 2018.
Omer also operates a sole proprietor business from which he earned
profits ofRs. 6,000,000 and Rs. 2,500,000 in tax years 2020 and 2021
respectively.
Required:
Under the provisions of the Income Tax Ordinance, 2001 compute the following for the tax
years 2020 and 2021:
Taxable income of AOP
Taxable income and tax liability of Baqir and Omer
– Show all relevant exemptions, exclusions and disallowances.
– Tax rates for tax year 2020 are the same as tax year 2021.
– Ignore minimum tax under section 113. (10)

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Chapter 13 | Foreign source income of resident person

1 Aslam is a resident taxpayer who operates his business from Lahore (LHR) and Paris (PAR). Q6
In August2014, he established a new branch in Berlin (BER). (S-15)
Following information is available in respect of his business operations for tax year 2015:

The following amounts paid by Aslam in respect of BER have been charged to LHR:
(i) salaries for the first three months amounting to Rs. 5 million.
(ii) rent expense for the year amounting to Rs. 7 million.
Required:
Under the provisions of the Income Tax Ordinance, 2001 calculate the tax payable by Aslam in
the tax year 2015 and foreign tax losses to be carried forward to next year, if any. (09)
2 On 1 July 2015 Mehreen joined a local newspaper as an investigative journalist at a salary of Rs. Q8
300,000per month. Tax deducted u/s 149 from her salary amounted to Rs. 40,000 per month. (A-16)
Following are the details of her income received from Germany; tax paid thereon and brought
forwardforeign losses for tax year 2016:
Head of incomes Foreign Foreign Tax Foreign
income/(Losses) losses b/f
Speculation business 600,000 110,000 (380,000)
Non-speculation business 1,480,000 187,600 -
Other sources (1,500,000) - -
Capital gain 950,000 76,000 (1,800,000)

On 1 May 2016 Mehreen resigned from her current job and joined Akhbar Merhaba (AM), an
Arabic newspaper in Dubai, as editor-in-chief on a monthly salary equivalent to PKR 1,200,000.
AM paid 50% ofher salary in Dubai and remitted the remaining 50% to her bank account in
Pakistan through normal banking channel. Mehreen remained in Dubai during the rest of the tax
year 2016.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made
thereunder,compute the taxable income, net tax payable by or refundable to Mehreen
for tax year 2016 and the amount of foreign losses or foreign tax credit, if any, to be
carried forward. (10)
Note: Show all relevant exemptions, exclusions and disallowances.

3 Explain the treatment of foreign source income for tax year 2017 under each of the following Q 2b
independent situations: (A-17)

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(i) Joseph, a South African cricket coach is working in Pakistan under an employment contract
since 20 July 2014. During the tax year 2017, he earned foreign source income from his business
established in South Africa and brought 25% of the income to Pakistan. (04)
(ii) On 15 January 2016 Farhan returned to Pakistan from London after 10 years and has been
living in Pakistan since then. During the tax year 2017, he received GBP 5,000 as return from his
investment in London. (02)
4 and administrative expenses include the following: Q4
(i) Salaries of Rs. 840,000 paid to two Ahmed has completed his MBA from a university in (A-20)
USA. He had been living there since August 2013 for his education and came to Pakistan
only once in 2017 i.e. from10 March 2017 to 30 September 2017 and then went back to
USA to complete his MBA. Along with his studies, he was also doing a part time job at a
restaurant in USAtill November 2019. He returned to Pakistan on 1 December 2019 and
commenced atrading business from 1 January 2020.
Below is the computation for taxable income/loss for the tax year 2020:
Pakistan Foreign Total
source source
income income
Income from Salary ------------------- Rupees -------------------
Salary from restaurant in USA 840,000 840,000

Income from business

Revenue 4,000,000 4,000,000
Less: Deductions
Cost of goods sold (2,200,000) (2,200,000)
Selling and administrative expenses (2,820,000) (2,820,000)
[Note A]
Donation (600,000) (250,000) (850,000)
[
Note B]
Taxable income/(loss) (1,620,000) 590,000 (1,030,000)
Note A:
(ii) Selling employees equally in cash. Withholding income tax was deducted as required
under Income TaxOrdinance, 2001.
(iii) Rs. 600,000 in respect of the feasibility study which was conducted before
commencement of the business.
Note B: Donation of Rs. 600,000 was paid to a charitable hospital in Pakistan andRs.
250,000 was paid to a non-profit organization in USA.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder,
comment on the above tax computation for tax year 2020. Give suggestion(s) wherever
required. (08)
Note: Revised computation is not required

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Income Tax Numerical

1. On 1 July 20X4, Tahir commenced business of manufacturing garments. Income statementof the Q. 1
business for the year ended 30 June 20X5 is as follows:
Notes Rs. in 000 (S-15)
Sales 49,330
Less: Cost of sales (i) (39,150)
Gross profit 10,180
Less: Administrative and selling expenses (ii) (9,140)
Financial charges (iii) (2,500)
Other charges (iv) (1,358)
(2,818)
Add: Other income 3,875
Profit before taxation 1,057

Notes to the income statement:

(i) On 15 July 20X4, used machinery was imported from China valuing Rs. 1,500,000. Depreciation
@ 15% was charged on machinery for the whole year and is included incost of sales.
(ii) Administrative and selling expenses include:
 Rs. 975,000 paid for the purchase of computer software. The software is likely tobe used
for twelve years.
 Cost of preparation of a feasibility study amounting to Rs. 250,000 which wasissued prior
to the commencement of business.
 Salary of Rs. 50,000 per month was paid to Tahir’s brother who handles thefinancial
matters of the business.
(iii) Financial charges include Rs. 80,000 pertaining to a vehicle obtained on lease from a leasing
company. The cost of vehicle was Rs. 1,300,000. Depreciation of Rs. 260,000 has been included in
administrative and selling expenses. Lease rentals paid during the year amounted to Rs. 300,000.
(iv) Other charges include:
 running and maintenance expenses of vehicle amounting to Rs. 295,450. Use ofvehicle for
personal purposes was approximately 20%.
 provision for bad debts amounting to Rs. 25,000.

Other information:
(i) Tahir was working in UAE for the past five years and had come back to Pakistan in April 20X4.
He received an amount equivalent to Rs. 150,000 from his ex-employer as differential amount on
his final settlement in August 20X4.
(ii) He sold a plot for Rs. 3,500,000 which was inherited from his father in 20X1. Fair market value
of the plot at the time of inheritance was Rs. 1,500,000.
(iii) 5,000 shares were purchased for Rs. 600,000 from initial public offering of a new listedcompany.
(iv) Premium of Rs. 300,000 was paid on Tahir’s life insurance policy.
Required:
Under the provisions of the Income Tax Ordinance, 2001 compute the taxable income andtax
liability of Tahir for the tax year 20X5. Provide comments in respect of items which do not appear
in your computation. (Tax rates are given on the last page) (18)

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2. Mukarram is working as a Commercial Manager in Airmen Engineering Limited (AEL), an unlisted public
company, for the past many years. He derived following emoluments per month during the tax year ended 30 June
20X8: Q1
Description Rupees (A-15)
Basic salary 250,000
Medical allowance 37,500
Conveyance allowance 25,000
Travel allowance 11,500
In addition to above, Mukarram was also provided the following:
i. A used company maintained car for both business and personal use. This car was provided to him on 1 July
20X7 in replacement of his previous car. This car was purchased three years ago at a price of Rs. 1,000,000.
However, the fair market value of the car on 1 July 20X7 was Rs. 800,000. On 1 September 20X7, in
accordance with the terms of his employment, AEL transferred the previous car to Mukarram free of cost.
The market value of the car at the time of transfer was Rs. 400,000 whereas its book value was Rs. 200,000.
On 1 June 20X8, Mukarram sold this car to his neighbour at a price of Rs. 350,000.
ii. Performance related bonus of Rs. 500,000. The bonus was however, paid to him on 5 July 20X8.
iii. Two free buffet dinner coupons per month, one each for Mukarram and his wife in a five-star
hotel. The coupons were provided in line with AEL’s policy for its management employees. The
dinner costs AEL Rs. 2,000 per person.

iv. Reimbursement of Rs. 20,000 in respect of telephone and internet charges. 20% of this amount
was spent by Mukarram in performance of his official duties.
v. Two air-conditioners and a washing machine for use at home. The combined book value of these
appliances was Rs. 300,000. The appliances are returnable to AEL after three years’ time. AEL
charged 10% depreciation on these appliances.
vi. An option to purchase 20,000 shares in AEL on 1 May 20X8 at Rs. 25 per share. The break- up
value of AEL on that date was Rs. 85 per share.
Other information relevant to tax year 20X5 is as under:
(i). On 1 April 20X8, Mukarram sold a diamond ring to his brother Zohaib for Rs. 250,000. The
ring was purchased on 1 January 20X6 at a price of Rs. 280,000.
(ii). Mukarram has 65 acres of agricultural land in Badin and a building in immediate vicinity of
the land. Mukarram rented out 30 acres of his land along with the building to Dino who is
a cultivator. Dino uses the building as a store house. Mukarram received annual rents of
Rs.750,000 and Rs. 325,000 in respect of the land and building respectively.

Mukarram is also running a small rice husking unit in Badin. He uses entire agriculturalproduce in
the husking unit which is grown on the remaining portion of his land. During the year he brought 5,000
kilograms of raw rice from his land to the unit for husking. He would have earned Rs. 2,500 per 40
kilogram of raw rice had he sold it directly to the market. His sales from rice husking unit stood at Rs.
850,000 whereas other operating expenses were of Rs. 400,000.
(iii). On 31 May 20X8 a painting was destroyed by heavy rains. Mukarram had purchased
thepainting on 30 June 20X5 for Rs. 100,000. However, due to constant increase in the
value ofthe painting, he had insured it at a premium of Rs. 15,000. He received insurance

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claim ofRs. 275,000 on 15 June 20X8.

Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, compute
the taxable income of Mukarram for tax year 20X8.
Note: show all relevant exemptions, exclusions and disallowances. (20)
3. Wajahat, aged 48 years, is a marketing manager in Nayaab (Pvt.) Limited (NPL), a companyengaged in the
manufacture and supply of tissue papers. The details of his monthly emoluments during the year ended 30 June
20X8 are as under:
Q1
Rupees (S-16)
Basic salary 70,000
Dearness allowance 10,000
Conveyance allowance 8,000

In addition to the above, Wajahat was also provided the following:

(i) Provident fund (PF) contribution of Rs. 8,400 per month. An equal amount per month was
contributed by Wajahat to the fund. Interest income of Rs. 391,000 at the rate of 20% of
accumulated balance of PF was credited to his PF account.
(ii) Reimbursement of electricity bills during the year amounting to Rs. 60,000.
Following further information is also available:
(i) Wajahat received net dividend of Rs. 78,200 from BEE Limited, a company listed on Pakistan Stock
Exchange Limited. Withholding tax and zakat deducted from dividend amounted to Rs. 9,200
and Rs. 4,600 respectively. He also received dividend of Rs. 65,000 from a company in U.A.E
through normal banking channels.However, no tax was withheld either in Pakistan or U.A.E.
(ii) Wajahat contributed Rs. 890,000 in an approved pension fund under the Voluntary Pension System
Rules, 2005.
(iii) On 1 September 20X5, Wajahat started a tuition centre for the students of finance ina posh
locality. He received tuition fees of Rs. 2,198,000 and incurred following expenses:
 Monthly salary of Rs. 50,000 paid to himself and Rs. 35,000 to his friend Yousufwho taught
financial accounting at the centre.
 Travelling, boarding and lodging expenses of Rs. 300,000. These expenses wereincurred by
Wajahat in Sri Lanka for attending teachers training workshop.
 Rs. 250,000 against purchase of used computers for the centre.
 Other miscellaneous expenses amounting to Rs. 195,000.
(iv) Wajahat’s total taxable income during the previous tax year was Rs. 1,850,000.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, compute the
total income, taxable income and net tax payable by/refundable to Wajahat during the tax year 20X6.
(16)
Note: Show all relevant exemptions, exclusions and disallowances. Tax rates are given on the last page.

4. Bader is working as General Manager Finance with HiFi Limited (HFL) for the past two years. The details of
his monthly emoluments during the year ended 30 June 2016 are asunder: Q1
Description Rupees (A-16)

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Basic salary 250,000

Medical allowance 28,000
House rent allowance 120,000
In addition to above, Bader was also provided the following:
(i) Rs. 900,000 for signing a bond with HFL. According to the bond Bader would not resign from his
employment before the expiry of 30 June 2021.
(ii) Company maintained car for both official and private use. The car was purchased on 1 August 2017 at a fair
market value of Rs. 1,500,000.
(iii) On 1 January 2018 HFL sold an item of inventory to Bader for Rs. 12,000. The net realizable value of the
item of inventory at the end of 31 December 2017 and 30 June 2018 was Rs. 22,000 and Rs. 24,000
respectively. HFL had acquired it in July 2016 at a cost of Rs. 35,000.
(iv) An option was granted to Bader in August 2016 to acquire 2,500 shares in HFL’s parent company, Mamoo
plc. (MP), listed on Hong Kong stock exchange. However, the option was exercisable after completion of one
year of service with HFL. Bader paid an amount equivalent to PKR 200,000 to acquire the option when the fair
market value of the option was PKR 250,000. On 1 September 2017 he paid an amount equivalent to PKR
300,000 to acquire the shares in MP. The shares were issued to him on 15 September 2017 when the market
value of each share was equivalent to PKR 375.
(v). On 15 June 2018 Bader sold 2,000 shares in MP and received net proceeds equivalent to PKR 875,000 in
his bank account in Pakistan. This amount was received after deduction of bank charges of PKR 5,000 and
brokerage commission equivalent to PKR 10,000.
Other information relevant to tax year 2018 is as under:
On 1 July 2017 Bader received following payments from his previous employer Sultan Hospital
Limited:
(i). Rs. 600,000 in respect of termination benefits under an agreement.
(ii). Rs. 485,000 against gratuity under an unapproved scheme.
On 1 November 2017 Bader fell ill and was admitted to Sultan Hospital Limited. The hospitalincurred
Rs. 65,000 on his treatment but did not charge anything to Bader.
(iii). On 1 December 2017 he paid a premium of Rs. 300,000 on a life insurance policy.
(iv). On 1 January 2018 Bader purchased 35,000 listed shares in Muft Limited (ML) at a price of Rs. 25
per share. On 20 March 2018 he fully subscribed 15% right shares offered by ML toits existing
shareholders at a price of Rs. 20 per share.
(v). Withholding tax deducted from Bader’s salary during tax year 2018 amounted to Rs. 1,105,000.
(vi). His total assessed taxable income and total taxes paid thereon during the three preceding taxyears
amounted to Rs. 10,500,000 and Rs. 1,260,000 respectively.

Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, computethe
taxable income and net tax payable by or refundable to Bader for tax year 2018. (15)
5. Mushtaq is a sole proprietor of Mushtaq Enterprises (ME) engaged in the business of manufacturing of
different products. ME’s profit and loss account shows profit before taxation of Rs. 1.8 million for the year
ended 30 June 20X7. Q1
A review of ME’s records hasrevealed the following information. (S-17)

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(i) ME employs five salesmen. Rs. 22,000 per month were paid to each salesman in cash which
includes reimbursement of Rs. 6,000 per month incurred on entertainment of customers at the
business premises.
(ii) Administrative expenses include Rs. 150,000 which were paid to a research institutein China for
the purpose of developing a new product.
(iii) Accounting loss on the sale of patents was Rs. 65,000. The tax written down value ofthese
patents at the beginning of the year was Rs. 430,000 and these were sold for Rs. 524,000.
Amortization charged to the profit and loss account on these patents for the current year was Rs.
25,000.
(iv) Receivables from Atif and Aslam which had been written off in the previous year were
recovered. Details are as follows:
Description Atif Aslam
Claimed bad debts in last 800,000 1,200,000
tax return
Allowed by tax 550,000 600,000
authorities last year
Amount recovered 700,000 400,000
during the year
ME has opened a sales office in Dubai. In this respect, furniture costing Rs. 850,000 with written down
value (WDV) of Rs. 650,000 was shifted to Dubai office. The tax WDV of the furniture at the beginning of the
year was Rs. 610,000.
(i). Accounting depreciation for the year is Rs. 580,450. However, no depreciation has been provided on the
following fixed assets purchased on 1 March 20X7:

Description Rupees
Furniture 200,000
Used machinery imported from Germany 500,000

(ii). Tax depreciation for the year, prior to the adjustments mentioned in (vi) above, amountedto Rs.
456,400.
(viii). Advance tax paid u/s 147 was Rs. 200,000.
(ix). The assessed business losses of tax year 20X1 brought forward in year 20X7 are Rs. 830,000.
These include unabsorbed tax depreciation amounting to Rs. 705,000.
(x). Other transaction of Mushtaq
On 1 June 20X7, he sold 6,000 shares for Rs. 432,000 out of 15,000 shares which he receivedon 1 May 20X4,
on the death of his father. The fair market value of shares on the date oftransfer to Mushtaq was Rs.
25 per share.

Required:
Under the provisions of Income Tax Ordinance, 2001 and rules made thereunder, compute taxable income
and net tax payable by or refundable to Mushtaq for the year ended 30 June 20X7. (16)
6. Taqi Ahmed is working as Director Marketing with Zee Textiles Limited (ZTL) for the last twenty-five Q 1
years. Details of his monthly emoluments during the year ended 30 June 2018 are as under:
(A-17)

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Description Rupees
Basic salary 440,000
Conveyance allowance 44,000
Medical allowance 44,000
In addition to the above, Taqi Ahmed has provided the following information:
(i). He and his family members are covered under the health insurance policy in accordance
withthe terms of employment. The amount of annual premium paid by ZTL was Rs.
200,000.
(ii). During the year, daily allowance of Rs. 400,000 was received to meet the expenses
for working on assignments at ZTL’s factories located in Lahore and Multan.
(iii). On 31 July 20X8, the HR Committee approved a performance bonus for all employees
forthe year ended 30 June 20X7. Taqi received Rs. 1,200,000 as performance bonus
on 15 August 20X8.
(iv). On 31 March 20X8, in recognition of completion of twenty-five years of his service
with ZTL, the board of directors approved to waive the outstanding amount of loan taken
by Taqi Ahmed. This interest free loan of Rs. 2,500,000 was taken on 1 January 20X6
and was repayable in fifty equal monthly instalments commencing from May 20X6. The
prescribed benchmark rate is 10% per annum.
(v). During the year, he received Rs. 100,000 for attending board meetings of ZTL. No tax
waswithheld from this amount.
(vi). Amount of tax withheld by ZTL from his salary amounted to Rs.

2,000,000. Other information relevant to tax year 20X8 is as under:

(i). Salary is transferred to the bank account on 10th of the following month.
(ii). 10% annual increase was given to him effective 1st July in each of the last three years.
(iii). Taqi has given his house on rent to his cousin at annual rent of Rs. 1,500,000. The rent
was inclusive of amenities and utilities of Rs. 25,000 per month. However, annual
rent for a similar house with same amenities and utilities, in the vicinity, is Rs.
1,800,000.
(iv). He acquired 15,000 shares of a listed company from Privatization Commission of Pakistan
at a price of Rs. 60 per share on 15 January 20X7. He claimed tax credit of Rs. 90,000 on
suchinvestment, against the tax payable for the tax year 20X7. On 15 June 20X8 he sold
all theshares at the rate of Rs. 85 each.
(v). On 31 August 20X7, he was entitled to receive 5,000 interim bonus shares from Arian
Limited (AL) a listed company. The market value of these shares on that date was Rs. 22
per share.
(vi). He also received Rs. 150,000 as cash dividend declared by AL. The share registrar
incorrectlytreated Taqi as non-filer and deducted withholding tax accordingly.

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Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, compute under correct
head of income, the total income, the taxable income and net tax payable by orrefundable to Taqi Ahmed
for the year ended 30 June 20X8. (16)
7. Mr. Qateel, a resident individual, is engaged in the manufacture of various consumer goods underthe name and
style ‘Qateel Enterprises (QE)’. The following information has been extracted from the records of QE for the
financial year ended 30 June 20X8.
Q1
Description Rupees (S-18)
Total turnover 28,500,000
Cost of sales (26,155,000)
Gross profit 2,345,000
Operating expenses (4,500,000)
Operating loss (2,155,000)
Finance charges on lease of machinery (35,703)
Other income 5,000,000
Profit before tax 2,809,297
ADDITIONAL INFORMATION:
(i). Cost of sales includes:
(a). Rs. 45,000 paid as fine for violation of contract with a customer for delay in supply ofgoods.
(b). Accounting depreciation of Rs. 1,900,000 (including depreciation on leased assets).
(ii). Operating expenses include:
(a). Rs. 450,000 paid for renewal of a manufacturing licence for fifteen years.(b). vehicle tax
paid in cash amounting to Rs. 55,000 for eight office cars.
(c). Rs. 200,000 paid as security deposit to K-Electric (KE) for replacement of transformer at the factory.
(d). Rs. 300,000 collected by KE as advance tax through monthly electricity bills.
(e). cash donation to poor families amounting to Rs. 64,600 and donation of Rs. 2,000,000 paid through
cheque to Edhi Foundation, which is listed in Part 1 of the Second Scheduleof the Income Tax Ordinance,
2001.
(f). penalty of Rs. 25,000 imposed by the Commissioner Inland Revenue for late filing ofannual return of
income for the tax year 20X7.
(g). entertainment expenditure of Rs. 128,000 incurred on arrival of foreign customers for business purposes.
(iii). Other income includes:
(a). dividend of Rs. 580,000 received from listed companies. The amount is net of income tax at the rate of
15% and Zakat of Rs. 100,000 deducted under the Zakat and UsherOrdinance, 1980.
(b). Capital gain of Rs. 1,200,000 from sale of shares of a private limited company. Shares were acquired on
1 August 20X3.
(iv). On 30 June 20X8, leased machinery was transferred to Qateel on maturity of lease. Theleasing company
was asked to adjust the amount of security deposit against the residual valueof Rs. 100,000. The date of
commencement of lease was 1 July 20X3. Lease rentals paidduring the year amounted to Rs. 270,000. On
the date of maturity, the accounting written down value and market value of the machinery was Rs. 590,490
and Rs. 800,000 respectively.
(v). During the year, a warehouse was constructed for storage of goods at a cost of Rs. 1,040,000.

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No accounting depreciation has been recorded on it.

(vi). Tax depreciation for the tax year 20X8 without considering the effect of para (iv) and (v) above, amounted
to Rs. 1,560,000.
(vii). Advance income tax paid during the year amounted to Rs. 480,000.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, compute the total income,
taxable income and net tax payable by or refundable to QE for the year ended 30 June 20X8.
Ignore minimum tax under section 113.
Show all the relevant exemptions, exclusions and disallowances. (18)

8. Ahmer Ghazi has been working as director production in Delta Pakistan Limited (DPL) for last three years.
He received following monthly emoluments from DPL during the year ended30 June 20X8: Q1
Rupees (A-18)
Basic salary 650,000
House rent allowance 95,000
Medical allowance 70,000

In addition to the above, the employer also provided following to Ahmer Ghazi:

(i) Health insurance for him and his family members. The amount of annual premium paidby
DPL was Rs. 50,000.
(ii) Return air ticket for Dubai worth Rs. 180,000 for him and his family as a reward for
achieving the production target.
(iii) Loan of Rs. 5 million was given to him on 1 August 20X7 at 6% per annum.
(iv) Withholding tax of Rs. 1,500,000 deducted from his salary was reimbursed to him.

Other information relevant to the tax year 20X8 is as under:

(i) Under an employee share scheme 10,000 shares of DPL were allotted to Ahmer Ghazion 1
January 20X6. According to the scheme, he was not allowed to sell/transfer the shares up
to 31 December 20X6. On 1 April 20X8, he sold 6,000 shares of DPL for Rs. 33 per share. The
face value of each share is Rs. 10. Fair market values of each shareon different dates were as
follows:
 Rs. 20 per share on 1 January 20X6
 Rs. 23 per share on 1 January 20X7
 Rs. 29 per share on 30 June 20X8

(ii) On 30 October 20X7 Ahmer Ghazi let out his apartment at a monthly rent of Rs.
30,000to his friend. The fair market rent of the apartment is Rs. 40,000 per month.
(iii) He is a part time singer and earned Rs. 225,000 by allowing a private TV channel to
usehis song in a TV drama.
(iv) He purchased Sukuks of a listed company amounting to Rs. 1,400,000 as an
originalallottee, on 30 June 20X8.

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Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, compute the
following for the year ended 30 June 20X8:
(a) Total income (10)
(b) Taxable income (01)
(c) Net tax payable or refundable (05)
9. Saleem is a resident taxpayer and runs a fitness centre in DHA Karachi. He files his return ofincome Q 1
regularly.
(A-18)
Following information pertains to his business for the tax year 20X8:
i. Accounting profit before tax amounted to Rs. 2,350,000.
ii. Administrative expenses include annual rent of the premises used for fitness centre amounting to
Rs. 1,560,000. Withholding tax of Rs. 144,000 was deducted from the rent payment but was not
deposited in the government treasury.
iii. A passenger transport vehicle used for pick and drop of employees of fitness centre wasdisposed of
for Rs. 3,500,000. The vehicle was purchased for Rs. 4,500,000 in tax year 20X7. No accounting
depreciation was provided during the year 20X8. Accounting gainof Rs. 200,000 has been recorded
in the profit or loss account.
iv. On 1 July 20X7, a car was acquired on finance lease for Rs. 3,000,000. Advance tax paid at the time of
acquisition and registration of vehicle aggregated Rs. 85,000. The vehicle has been used 70% for
business purposes and 30% for Saleem’s personal use.

v. Accounting depreciation of Rs. 600,000 and financial charges of Rs. 462,000 were recorded in
the profit or loss account. Lease rentals paid during the year amounted toRs. 857,000.

During the year, Saleem recorded gain of Rs. 50,000 on disposal of shares. Details are as under:
Name of Investee Company Sold on Purchased Gain/loss on
on Disposal

Sun (Private) Limited 1 Aug 20X7 1 Sep 20X3 500,000

Moon Limited - a listed company 15 Sep 20X7 1 Jan 20X5 (700,000)
Planet Limited - a listed company 1 Feb 20X8 1 Jan 20X6 250,000
50,000

Required:
Compute Saleem’s taxable income under appropriate head of income and tax liability for the tax year 20X8.

10. Saeed, a citizen of Pakistan, was working on a foreign vessel belonging to Delta Shipping
Q1
Company (DSL) based in Spain for the past three years. His monthly salary was USD 15,000which
(A-19)
was remitted to his Pakistani bank account through normal banking channel. The amount received
during the tax year 20X9 was converted to Pak Rupees at an average exchange rate ofUSD 1 = PKR
131.

On 1 October 20X8, he resigned from DSL and joined Haris Pharma Limited (HPL) in Pakistanas a
General Manager. He was offered following monthly salary and allowance in HPL:
Rupees
Basic salary 600,000

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Medical allowance 66,000

In addition to the above, he was also provided the following:
(i). Bonus equal to two monthly basic salaries. However, bonus amount was adjusted in
proportion to the duration of his stay in the company. The bonus amount was paid to him
on 5 July 20X9.
(ii). Two company maintained cars. Both cars were purchased on 1 October 20X8. The car
costing Rs. 3,500,000 was used for official purposes whereas the car costing Rs. 1,900,000
was used for personal purposes.
(iii). Free lunch from the restaurant owned by one of HPL’s directors. The fair market value of
food provided to him during the year was Rs. 125,000.
(iv). A special allowance of Rs. 20,000 per month to meet expenses wholly and necessarily
incurred in the performance of his official duties. Actual expenses incurred by him during the
year were Rs. 150,000.
(v). Provident fund contribution of Rs. 60,000 per month. An equal amount per month was also
contributed by Saeed to the fund.
Other information relevant to tax year 20X9 is as under:
(i) On 1 December 20X8, Saeed obtained a loan of Rs. 25 million from a scheduled bank at 15%
mark-up per annum to acquire a residential house.
(ii) During the year, he received dividends of Rs. 575,000 from a listed company. The amount
was net of withholding income tax at the rate of 15% and Zakat of Rs. 62,500 deducted under
the Zakat and Usher Ordinance, 1980.
(iii) Withholding tax deducted by HPL from Saeed’s salary during the tax year 20X9 amounted to
Rs. 1,300,000.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, compute under the
appropriate head of income, the total income, taxable income and net tax payable by or refundable to Saeed for
the tax year 20X9. (17)
11. For the purpose of this question, assume that the date today is 31 August 2020. Q1
Shahid is engaged in the business of manufacturing and supplying of auto parts. (S-20)
Following is the extract of his profit or loss statement for the tax year 2020:
Rs. in '000’
Sales 29,058
Cost of goods sold (18,724)
Gross profit 10,334
Operating expenses (3,137)
Financial charges (2,030)
Other income 1,260
Profit before tax 6,427
The above accounts have been prepared on cash basis and stock-in-trade has been valued on prime cost
method. However, Shahid wants to change the method of accounting from cash basis to accrual basis.
In this respect, following information has been gathered:
Opening balances Closing balances

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--------- Rs. in '000 ---------

Stock-in-trade using prime cost method 1,800 2,800
Stock-in-trade using absorption cost
method 2,300 3,200
(i) Cost of goods sold includes:
 purchase of packing material of Rs. 440,000 from Nasir Traders. No withholdingtax was
deducted at the time of payment.
 freight charges of Rs. 85,000. These were paid in cash for transporting goods fromsuppliers.
(ii) Operating expenses include:
 salary of Rs. 80,000 per month paid to Shahid’s brother who handlesadministrative
matters of the business.
 expenditure of Rs. 950,000 incurred on the development of a product which isexpected
to generate revenue for five years.
 penalty of Rs. 15,000 for late filing of income tax return.
(iii) Financial charges include profit on debt of Rs. 450,000 earned on fixed deposit account
maintained with a bank. The bank withheld income tax and Zakat amounting to Rs. 45,000 and
Rs. 93,750 respectively.
(iv) Other income includes:
 capital gain of Rs. 45,000 received, net of withholding tax of Rs. 6,750, on sale of20,000
shares in Metal Limited (ML) in November 2019. ML is listed on PSX. On 1 January 2018,
Shahid purchased these shares for Rs. 200,000 at initial public offering. He had claimed a
tax credit of Rs. 15,000 on such investment intax year 2018.
 rent of Rs. 980,000 received from an agriculture land in Badin. No withholdingtax was
deducted at the time of receipt.
(v) Tax depreciation for the year amounts to Rs. 680,000.
(vi) Tax deducted at source by customer’s amounts to Rs. 875,000.
(vii) The unabsorbed tax depreciation brought forward from tax year 2019 amounts toRs.
568,000.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder,compute
total income, taxable income and net tax payable by or refundable to Shahid for the tax year 2020.
(Use accrual basis of accounting) (18)
12. Sageer, a resident individual, is working as a full time professor at Knowledge Institute (KI) which is a Q1
non-profit education and research institution and is duly recognized by Higher Education
(A-20)
Commission. KI is entirely owned and funded by Zinger Limited (ZL), a company listed on the
Pakistan Stock Exchange.

Details of his monthly remuneration during the year ended 30 June 2020 are given below:

Rupees
Basic salary 200,000

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Medical allowance 20,000

Fair market rent of accommodation 100,000

In addition to the above, he was also provided the following:

 Health insurance for Sageer and his dependents as per the terms of employment. Forthis
purpose, KI is paying annual insurance premium of Rs. 40,000.
 Provident fund contribution of Rs. 15,000 per month to a recognized provident fund.An
equal amount was also contributed by Sageer to the fund.

Additional information
(i) On 1 July 2019, Sageer was granted an option to acquire 10,000 shares in ZL at a price of Rs. 105
per share under an employee share scheme. Sageer bought the option on the same date by
paying Rs. 175,000 to KI when the fair market value of the option wasRs. 200,000. He exercised
the option on 30 September 2019 when the fair market valuewas Rs. 130 per share.
As per the scheme, he was not allowed to sell or transfer the shares before 31
December 2019. On 31 December 2019, the fair market value of ZL’s shares was Rs. 142. On
30 May 2020, he sold 5,000 of these shares at Rs. 135 per share.
(ii) On 1 July 2019, Sageer obtained an interest free loan of Rs. 1,500,000 from KI in exchange
for which he agreed to waive the interest receivable on his provident fundbalance maintained
with KI. Interest provided on provident fund balance for the year was 8%. The prescribed
benchmark rate is 10%.
(iii) On 31 August 2019, he received leave encashment of Rs. 100,000 relating to previousyear.
(iv) During the year, tax of Rs. 160,000 was deducted at source by KI.

Other information relevant to tax year 2020:

(i) On 15 January 2020, he sold a shop situated in Karachi for Rs. 15,000,000. He had purchased
this shop in 2018 for Rs. 19,000,000 out of which Rs. 5,000,000 was paid in cash.
(ii) On 1 March 2020, he sold a residential plot situated in Faisalabad for Rs. 18,000,000. The plot was
inherited from his father in 2014. Fair market value of the plot at the time of inheritance was Rs.
7,000,000.
(iii) In June 2020, Sageer independently developed learning courses for sale through a web based
marketplace managed by a company situated outside Pakistan. On
25 June 2020, he received USD 4,260 into his dollar account from sale of these courses.
Withholding income tax @ 8% was deducted from the receipt as per the income tax laws of
the foreign country.
Relevant exchange rates were as follows:

25 June 2020 USD 1 = PKR 168

30 June 2020 USD 1 = PKR 169
Average exchange rate for June 2020 USD 1 = PKR 168.5

(iv) On 1 June 2020, Sageer paid Rs. 2,500,000 as donation to a non-profit organization listed in the

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Second Schedule of the Income Tax Ordinance, 2001.

Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, compute the
taxable income and net tax payable by or refundable to Sageer for the year ended 30 June 2020. Show
all relevant exemptions, exclusions and disallowances. (19)
13. Muhammad Asghar owns an industrial undertaking under the name and style of Asghar & Company Q 3
(AC) which is engaged in the business of manufacturing pharmaceutical products. Following (S-21)
information is available for the year ended 31 December 20X1:

Rs. in '000
Turnover 324,850
Cost of goods sold (217,197)
Gross profit 107,653
Administrative and distribution expenses (88,980)
Marketing expenses (19,765)
Other income 3,560
Profit before tax 2,468

Additional information:
(i) Cost of goods sold includes:
 raw materials of Rs. 7,800,000. No withholding tax was deducted at the time of
payment.
 accounting depreciation of Rs. 2,100,000 on plant and machinery.
 provision for slow moving inventory of Rs. 1,800,000.

(ii) Administrative and distribution expenses include:

 Rs. 676,500 paid to a local hotel for holding annual Eid-Milan party for
theemployees and their families.
 Rs. 1,235,000 paid as penalty to a customer in settlement of his claim for
damages under a contract for the supply of a batch of vaccines. Laboratory
tests and in-house investigations revealed that the level of impurities in the
vaccines exceeded the acceptable level as agreed in the contract.
 Rs. 2,300,000 paid as donation to a hospital established by the local government.

(iii) Marketing expenses include a reward of Rs 500,000. The reward was paid in cash toone of
the salesmen for exceeding his sales target.
(iv) Other income includes:
 dividend of Rs. 174,000. This amount was received from a listed company after
deduction of income tax at the rate of 15% and Zakat of Rs. 30,000 deducted
 under the Zakat and Usher Ordinance, 1980.
 gain of Rs. 660,000 on sale of shares in Akash (Pvt) Limited (APL) in November
20X1. 60% of the shares in APL are owned by the Federal Government. AC
purchased these shares in June 20X0.

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Other information:
(i) A second hand plant was imported from France at a cost of Rs. 2,500,000. Withholding
tax of Rs. 150,000 was deducted at import stage. The plant was installed in the month of
September 20X1. AC incurred Rs. 375,000 on the
installation of plant which is included in administrative and distribution expenses.
(ii) Pre-commencement expenditures of Rs. 3,400,000 were charged to accounting profit
and loss for the year ended 31 December 20X0. However, for tax purposes, it has tobe
amortized over the period of five years.
(iii) Tax depreciation other than imported plant amounted to Rs. 1,900,000.
(iv) Income tax deducted by the customers’ u/s 153 and advance income tax paid u/s 147
during the year amounted to Rs. 1,400,000 and Rs. 200,000 respectively.

Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder,compute
total income, taxable income and net income tax payable by or refundable to AC
for the tax year 20X2. (19)
Note: Your computation should commence with profit before tax figure of Rs. 2,468K.
 Ignore minimum tax under section 113.
 Show all relevant exemptions, exclusions and disallowances.

14. Nauman has been working as manager finance in Dua Limited (DL), a public listed company, for
many years. He received following monthly emoluments from DL during the year ended 30 June 2021:
Q.1
Rupees (A-21)
Basic salary 120,000
Medical allowance 20,000
House rent allowance 60,000
In addition to the above, the employer also provided him the following benefits:
(i) Company maintained car for both official and personal use. The car was purchasedon 1 July
2016 at the cost of Rs. 1,400,000. As per company policy, Nauman purchased this car at its
book value of Rs. 450,000 on completion of five years
i.e. 30 June 2021. Fair market value of this car on the date of sale to Nauman wasRs.
1,000,000.
(ii) Provident fund contribution of Rs. 18,000 per month to a recognized provident fund. An equal
amount was also contributed by Nauman to the fund. Interest income ofRs. 540,000 at the
rate of 18% of accumulated balance of the fund was credited toNauman’s account.
(iii) On 1 July 2020, he was transferred to Lahore and was paid relocation allowance of Rs.
300,000.
(iv) HR Committee approved a performance bonus for the year ended 30 June 2021 for all
employees. Nauman received Rs. 400,000 as performance bonus on 15 July 2021.
(v) On 1 April 2021, Nauman obtained a loan of Rs. 5,000,000 @ 6% per annum fromDL to
purchase a new house for his own use. First instalment of the loan was paid on 30 June 2021. He

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incurred legal expenses of Rs. 20,000 for obtaining the loan.

Other information relevant to tax year 2021:

(i) During the year, Nauman received interest income of Rs. 510,000 on his investments in defence
savings certificates. The amount was net of withholding income tax at therate of 15% and
Zakat of Rs. 200,000 was deducted under the Zakat and Usher Ordinance, 1980.
(ii) On 1 October 2020, Nauman received advance rent of Rs. 1,200,000 for 12 months for rentingoffice
premises. This amount includes Rs. 400,000 for utilities, cleaning and security. During the tax year 2021,
Nauman incurred following expenditures inrelation to the premises:
Rupees
Repair and maintenance 70,000
Insurance premium 50,000
Administration and collection charges of rent 30,000
Utility, cleaning and security 250,000

Nauman has opted normal tax regime for chargeability of tax on income fromproperty.
Required: Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, compute
total income and taxable income of Nauman for the tax year 2021. Show all relevant exemptions, exclusions
and disallowances. (13)

15. Abbas, a resident individual, is engaged in the business of manufacturing various consumer goods under the
name and style of ‘Kamyab Enterprises (KE)’. Q.4
Following information hasbeen extracted from KE’s records for the year ended 30 June 2021:
(A-21)
Rupees
Sales 43,089,000
Cost of sales (26,042,000)
Gross profit 17,047,000
Administrative and selling expenses (7,800,000)
Financial charges (2,100,000)
Other income 5,560,000
Profit before tax 12,707,000

Additional information:
Cost of sales includes:
(i) accounting depreciation of Rs. 1,200,000. The tax written down values of KE’s fixedassets
on 1 July 2020 were:

Rupees
Plant and machinery 6,860,000
Computers and related products 800,000
Motor vehicles (80% for business purposes) 3,000,000

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A new computer was purchased on 1 April 2021 for Rs. 150,000.

Motor vehicle which was purchased on 15 June 2019 at the cost of Rs. 1,000,000 was sold for
Rs. 750,000 on 31 May 2021. Carrying value of this motor vehicle was equalto sale proceeds.

(ii) an amount of Rs. 40,000 paid to factory supervisor on 23 March 2021 as advance salary
for the month of April. Since he was in urgent need of the amount and the banks were
closed on 23 March 2021 due to the Pakistan Day, he was paid in cash.

Administrative and selling expenses include:

(i) expenditure on ‘In-house scientific research’ related to KE’s business. It includes salaries of
Rs. 880,000 paid to scientists, material of Rs. 230,000 used in the research and Rs. 700,000
paid to a company in China for supporting KE’s scientists in the research work. This
expenditure was not recorded as intangible asset as it could not
provide an advantage for a period of more than one year.
(ii) an expense of Rs. 650,000 paid as an instalment towards the purchase price of an
industrial plot.
(iii) purchase of goats worth Rs. 225,000 for sacrifice on Eid-ul-Azha. The payment wasmade
through cross cheque.
(iv) donations of Rs. 1,000,000 to approved non-profit organisations. 40% of this amountwas
donated to organisations listed on the Second Schedule of the Income Tax
Ordinance, 2001. All donations were made through crossed cheques.
(v) an insurance premium of Rs. 200,000 paid to a registered insurance company forhealth
insurance of Abbas and his dependents.

Other income includes:

(i) an amount of Rs. 720,000 received from income tax department on account of taxrefund
related to tax year 2018. This amount includes an additional payment of
Rs. 80,000 due to delay in tax refund.
(ii) capital gains of Rs. 430,000 and Rs. 250,000 on sale of investments in shares of Manzil
Limited, a public unlisted company and Himmat Limited, a public listed company
respectively on 20 June 2021. Both investments were made on
1 January 2019.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, compute total income, taxable
income and net income tax payable by or refundable to Abbas for the tax year 2021. (18)

 Note: Your computation should commence with profit before tax figure of Rs. 12.707 million.
 Ignore minimum tax under section 113.
 Show all relevant exemptions, exclusions and disallowances.
Q.3
16. For the purpose of this question, assume that the date today is 31 August 2022.
(S-22)
Aakash Kumar owns an industrial undertaking under the name and style of Premjee & Co.(PJC) which

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is engaged in the business of manufacturing fast moving consumer goods. Following information is
available from PJC’s records for the year ended 30 June 2022:
(i) Loss before tax for the year was Rs. 87 million.
(ii) Operating expenses include:
 a penalty of Rs. 2 million for late delivery of goods to a customer.
 commission of Rs. 2.5 million which was paid to a distributor, Liaquat Bashir,on sale of
PJC’s products of Rs. 50 million. These products are covered in theThird Schedule of the
Sales Tax Act, 1990. Name of Liaquat Bashir is not appearing in the active taxpayers’ list
under the Income Tax Ordinance, 2001.
 freight charges of Rs. 1.2 million which were paid in cash to a freight forwarding company in
Karachi.
 accounting depreciation of Rs. 40 million.

(iii) Other income includes:

an insurance claim of Rs. 6 million, equivalent to accounting book value, received on 8
November 2021 in respect of a vehicle which was completely destroyed by fire. The
cost and fair market value of the vehicle before fire incident were Rs. 10 million and
Rs. 8 million respectively. This vehicle was purchased on 1 October 2019.

amounts recovered during the year from two debtors i.e. Shameem and
Faheem. These amounts had been written off in the last year. Details are as
follows:
Shameem Faheem
---- Rs. in million ----
Bad debts claimed in the last tax return 19.2 28.8
Bad debts allowed by tax authorities last year 13.2 14.8
Amounts recovered during the year 16.8 10.6
Rent of Rs. 21.6 million. On 1 July 2021, Aakash leased one of its factory
buildings alongwith the plant to Kamran at a monthly rent of Rs. 1.8 million,
payable in advance. The building was purchased for Rs. 85 million on 16
August 2019 whereas a second hand locally purchased plant was installed ata
cost of Rs. 34 million on 1 July 2021. During the year, Aakash incurredRs.
3.2 million on repair and maintenance of the factory building.
(iv) PJC’s liabilities include amounts of Rs. 14 million and Rs. 17 million in
respect of purchases made on 18 March 2018 and 1 August 2018 respectively.
These purchases were allowed as admissible deductions while computing
income from business in their relevant tax years.
(v) During the year, outstanding financial charges of Rs. 2.8 million were waived
by thebank on rescheduling the loan. These charges were claimed as admissible
deductionin the tax year 2020.

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(vi) Tax depreciation for the year on all fixed assets, other than factory building
and plantwhich were leased out to Kamran, amounted to Rs. 48 million.

Other information:
i. On 15 August 2021, Aakash entered into a derivative contract for the purchase
of gold. The contract was to be expired on 15 November 2021. Aakash sold the
contractbefore the settlement date and earned a net gain of Rs. 23 million on the
contract.
ii. On 30 June 2022, Aakash earned capital gains of:
iii. Rs. 20 million on sale of his immovable property which was purchased on
1 June 2019.
iv. Rs. 3.6 million on sale of shares in a private company. These were acquired on
1 June 2021.
v. During the year, Aakash received his share of profit from an AOP of Rs. 70
million.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, compute total income,
taxable income and net income tax payable by or refundable to Aakash for the tax year 2022. (18)
Note: Ignore minimum tax under section 113.
Show all relevant exemptions, exclusions and disallowances.

17. For the purpose of this question, assume that the date today is 31 August 2022. Q.1
(S-22)
Basit, a senior manager at Master Limited (ML), resigned on 31 January 2022 after completion
of three and a half year of service. During the tax year 2022, he received the following
emoluments from ML:
(i) Salary of Rs. 610,000 per month.
(ii) Allowance of Rs. 60,000 per month for services of domestic servant. Out of which, he paid Rs.
36,000 per month in respect of these services.
(iii) Allowance equal to 5% of salary solely expended in the performance of his duties of
employment.

Additional information:
(i) On 1 July 2021, he leased a car having fair market value of Rs. 4,800,000 at a monthly rental of
Rs. 120,000. He pays lease rentals from his own sources but has used thisvehicle for both
official and personal purposes.
(ii) On 1 July 2021, 13000 shares of ML were allotted to Basit under an employee sharescheme,
against the payment of Rs. 30 per share. According to the scheme, he was not allowed to sell /
transfer the shares upto 31 December 2021. On 31 May 2022, he sold 5000 shares of ML at its
fair market value (FMV). FMV of each share on different dates are as follows:
1 July 2021 31 December 2021 31 May 2022

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Rs. 50 Rs. 90 Rs. 80

(iii) On 15 February 2022, he received the following payments from ML as finalsettlement:
 Rs. 320,000 on account of leave encashment.
 Rs. 2,200,000 under gratuity scheme approved by the board.
 Rs. 700,000 salary arrears related to tax year 2021.

(iv) Withholding tax deducted by ML from Basit’s salary during the tax year 2022
amounted to Rs. 1,400,000.
Other information:
(i) On 31 January 2022, he received gold worth Rs. 200,000 as a gift from his old friend.
(ii) On 1 February 2022, he purchased mutual fund units of Rs. 2,500,000.
(iii) On 1 April 2022, he left for United Kingdom and joined Oliver Limited (OL) as an employee at
a monthly salary of GBP 3,200. He remained abroad till end of the tax year 2022. No
withholding tax was deducted by OL from his salary.
(iv) While residing in UK, Basit served as a visiting faculty member at a University. He earned GBP
1,500 from the university and incurred an expenditure of GBP 500 forproviding services at
the university. Withholding tax deducted by the university amounted to GBP 225.
(v) Average exchange rate during 1 April 2022 to 30 June 2022 was GBP 1 = Rs. 250.

Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder:
(a) compute the total income, taxable income and net tax payable by or refundable to
Basit for the tax year 2022. (Show all relevant exemptions, exclusions and disallowances) (16)

(b) what other option is available to Basit for the taxation of salary arrears of Rs. 700,000 received from
ML as part of final settlement. (Revised computation is not required) (01)
(c) identify the additional statement that Basit needs to file in respect of his foreign source income. Also
briefly discuss the particulars to be mentioned in the additional statement. (02)

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Chapter 14 | Returns

1 (a) List the persons who are required to furnish a return of income for a tax year under the Q2
Income TaxOrdinance, 2001. (06) (S-15)
(b) Specify the circumstances under which the Commissioner has powers to issue notice
demanding areturn of income from certain person(s) for less than one year. (03)
(c) State the powers of the Commissioner if a taxpayer fails to furnish return as required under
part (b) above, within the specified time. (04)
2 List the persons who may be granted immunity from filing of tax return u/s 114 of the Income Q 3c
Tax Ordinance, 2001 solely by reason of owning immovable property with a land area of two (A-16)
hundred
and fifty square yards or more or any flat located in areas falling within the municipal limits. (03)
3 (a) List the persons who are required to file a tax return under the provisions of the Income Q5
Tax Ordinance, 2001. (06) (S-17)
(b) In the light of the provisions of the Income Tax Ordinance, 2001:
(i) Identify the circumstances under which the Commissioner of Income Tax may require a
person to furnish a return of income for a period of less than twelve months. (03)
(ii) State the consequences if a person fails to furnish the return as required in above. (03)
4 Zahid, the sole proprietor of FG and company, is a resident individual and is in the process Q6
of filing hiswealth statement for the tax year 20X7. The relevant information is as under: (S-17)
(i) Assets and liabilities disclosed in the wealth statement for the tax year 20X6 were as follows:
Assets
Agriculture land in Hyderabad 5,000,000
Residential property in DHA Karachi 3,000,000
Investment in shares of listed companies 1,100,000
Business capital – FG & Co. 4,000,000
Motor vehicle 1,540,000
Cash at bank 600,000
Cash in hand 300,000
15,540,000
Liabilities
Bank loan (1,500,000)
Net assets 14,040,000

Details relating to FG & Co. are as follows:

Rupees
Income from business for the tax year 20X7 2,540,000
Drawings during the year 450,000
(ii) Balance of cash in hand and at bank, as on 30 June 20X7 amounted to Rs. 157,500 and
Rs. 730,000respectively.
(iii) Transactions carried out by Zahid during the year were as follows:
 Paid an advance of Rs. 1,000,000 against purchase of a bungalow for Rs. 10,000,000.
 Sold shares of a listed company for Rs. 350,000. The shares were purchased on 1 May
20X6 for Rs.50,000. Capital gain tax collected by NCCPL amounted to Rs. 37,500.

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 Gifted shares of a listed company to his brother. The shares were purchased by Zahid in
20X2 at acost of Rs. 100,000 whereas market value of the shares at the time of gift was
Rs 150,000.
 Paid Rs. 200,000 towards principal amount of the bank loan.
 Personal expenses amounted to Rs. 2,075,000.
 Net receipts against agricultural income amounted to Rs. 2,500,000.

Required:
Prepare Zahid’s wealth statement and wealth reconciliation statement for the tax year 20X7. (07)
5 Identify due date of filing of tax return in each of the following cases, under the provisions of Q 4b
the Income Tax Ordinance, 2001: (S-18)
(i) An individual whose entire income falls under final tax regime. (0.5)
(ii) An individual who derives his income from business which falls under normal tax
regime. (0.5)
(iii) An individual filing return in response to a notice received from the Commissioner who
believes that he is likely to discontinue his business. (01)
(iv) An individual filing return in response to a notice received from the Commissioner for not
filing return of income of the previous tax year. (01)
(v) A company .(01)
6 Imran, a resident person, is filing the return of his business income for the first time. He has been Q 3a
informed by his friend that he will also be required to file a wealth statement. In this respect, he (S-19)
seeks your advice about the particulars which he should disclose in his wealth statement. (04)
7 Who is required to file the foreign income and assets statement? Also state the particulars Q 3b
to be included in such statement. (05) (S-20)
8 Aoun has discovered an error in his annual income tax return which was submitted on the due Q 3b
date. Now he intends to file a revised return voluntarily. (A-21)
Required:
Under the provisions of Income Tax Ordinance, 2001 state the conditions which Aoun must
comply with for filing valid revised return. (04)
9 Mukhtar, a resident individual, is in process of finalization of his wealth statement forthe Q 2a
tax year 2021. He has provided you the following information: (A-21)
(i) During the tax year 2021, Mukhtar received share of profit of Rs. 1,400,000
from an AOP. As on 30 June 2020, his total investment in the AOP was
Rs. 5,300,000. He was also provided a car worth Rs. 2,500,000 by the AOP for
office use only.
(ii) In 2014, he had purchased 10 tola gold for Rs. 500,000. At 30 June 2021, the
market value of the gold was Rs. 107,000 per tola.
(iii) During the tax year 2021, he sold his personal car for Rs. 1,876,000. The car
was purchased in 2019 for Rs. 1,700,000.
(iv) During the tax year 2021, he paid Rs. 600,000 against outstanding interest free
loan of Rs. 1,000,000. The loan was obtained in tax year 2020.
Required:
Under the provisions of the Income Tax Ordinance, 2001 advise Mukhtar that howthe
above matters would be dealt with in his wealth statement and its reconciliation for

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the tax year 2021. (04)

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Chapter 15 | Assessment, Records and Audit

1 Maroof filed his return of income for tax year 2015 on 30 September 2015. On 15 August Q2
2016 he received a show cause notice from the Commissioner Inland Revenue u/s 122 for (A-16)
amendment of theassessment order issued on self-assessment basis.
Required:
Under the provisions of the Income Tax Ordinance, 2001 briefly describe:
(a) the circumstances under which an assessment order treated as issued on self-assessment
basis may be amended by the Commissioner. (04)
(b) the situations in which the Commissioner may be barred from amending the original
assessment order. (04)
2 List the situations under which an original assessment can be amended or an amended Q 4b
assessment can be further amended by the Commissioner of Income Tax. (A-17)
Also state the time period within which the original or the previously amended assessment
order can further be amended. (07)
3 Under the provisions of the Income Tax Rules, 2002 list the records to be kept by a taxpayer in Q 3d
respect of his income from: (S-18)
(i) Salary. (01)
(ii) Property. (1.5)
(iii) capital gain. (1.5)
4 (a) Under the provisions of the Income Tax Ordinance, 2001 briefly discuss the following: Q3a, b
(i) The term ‘Concealed assets’. (02) (S-18)
(ii) The powers of Commissioner relating to the concealed assets of any person when these are
impounded by the Federal Government. (03)
(b) Anwar had filed his return of income for the tax year 2013 on 31 August 2013. Discuss the
following inthe light of provisions of the Income Tax Ordinance, 2001:
(i) By which date the Commissioner of Income Tax could make the first amendment of the
assessment, ifrequired. (02)
(ii) By which date any further amendment can be made if the first amendment was made on 15
February2017. (02)
5 Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, briefly Q.4
explain the following: (A-19)
(a) Requirement of books of account to be maintained by a taxpayer who has business income
upto Rs. 500,000. (04)
(b) Provisions regarding Special Audit Panel. (05)
6 Under the provisions of the Income Tax Ordinance, 2001 and Rules made Q.3c
thereunder,discuss: the concept of ‘Concealed asset’ and state the powers of the (S-20)
Commissioner relating to concealed asset of any person when it is impounded by the
Federal Government. (05)

7 Briefly explain the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder Q 4b
relating to: (S-21)

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(ii) requirement of books of account to be maintained by a manufacturer having turnover

exceeding Rs. 2.5 million. (04)
8 Star Garments Limited (SGL) had filed its tax return for the tax year 2015 on Q5
30 September 2015. (S-21)
On 25 February 2021, the Commissioner of Income Tax, on the basis of definite
information, issued a notice u/s 122 (5) to SGL for the audit of books of account for the tax
year 2015.
The accountant informed the chief executive officer that tax audit for the tax year 2015 had
already been conducted in 2019 and an amended assessment order u/s 122(5A) was issued
by the Commissioner on 24 February 2020.
Required:
Under the provisions of the Income Tax Ordinance, 2001:
a. explain the term ‘Definite information’. (02)
b. discuss whether the Commissioner is empowered to make further amendment in the
assessment order issued on 24 February 2020. (07)
9 (i) Riaasat Limited (RL) is a manufacturing company. With effect from 1 July 2022, RL is Q 4b
considering to change its tax year from the normal to the special tax year ending on 31 (S-22)
December.
Required:
Identify the due/last date of filing of RL’s tax return in respect of the following:
o Filing of tax return for the year ended 30 June 2022.
o Filing of tax return for the transitional period.
o Filing of first tax return for the special tax year. (03)
(ii) Assume that RL has changed its tax year from normal to special and filed its tax returns for
relevant tax years, as discussed in (b)(i) above.
Required:
Identify the due/last date of amendment of assessment related to:
o normal tax year for the year ended 30 June 2022.
o first special tax year. (02)
10 Briefly explain the term ‘Sectoral benchmark ratios’. Also, explain the circumstances in which a Q 4b
Commissioner shall determine taxable income on the basis of sectoral benchmark ratios. (03) (S-22)

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Chapter 16 | Appeal, References and Petitions

1 Under the provisions of the Income Tax Ordinance, 2001 determine the date by Q 3b
which appeal can befiled with the Commissioner (Appeals) in the following (A-15)
cases:
(i) Assessment order for tax year 2014 was made on 31 December 2014. Demand
notice was served on 1January 2015. (02)
Refund application was filed on 18 April 2015 but no refund order was passed within 60
days. (02)
2 (a) Under the Income Tax Ordinance, 2001 identify four situations under which an Q4a&b
appeal may be filed with the Commissioner (Appeals). (04) (S-19)
(b) Sadiq Ali has received an ex-parte assessment order from the income tax
department under which he is required to pay Rs. 5.2 million on account of tax not
withheld from certain payments. He does not agree with the contention of the income
tax department and would like to file an appeal to the Commissioner (Appeals).
Required:
State the procedure that he should follow for filing of appeal to the Commissioner
(Appeals). (03)
3 On 2 July 2019, Rubina received a show cause notice u/s 122 from the Commissioner Q3
Inland Revenue (CIR) for amendment of the assessment order for tax year 2018. Due to (A-20)
lack of knowledge about tax matters, she did not respond to it.
On 1 August 2019, she received a demand notice under which she was required to pay
Rs. 610,000 within
30 days on account of undeclared income and an amended assessment order for tax
year 2018 under section 122 from the CIR.
Rubina is dissatisfied with the order issued by the CIR and wants to file an appeal to the
Commissioner
(Appeals) because payment of this amount will cause hardship to her.
Required:
Under the provisions of the Income Tax Ordinance, 2001:
(i) state the time period within which an appeal may be filed by Rubina to the
Commissioner (Appeals). (01)
(ii) discuss different types of orders that the Commissioner (Appeals) may make for
disposing of an appeal. (02)
(iii) explain what action(s) the Commissioner (Appeals) may take for ensuring that no
undue hardship will be caused to Rubina because of the payment of this demand. (03)
(iv) discuss the option(s) available to Rubina for defending her case, if the
Commissioner
(Appeals) issues an order confirming the amended assessment order issued by the CIR.
(02)

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Chapter 17-19 | Sales Tax Theory

1 (a) Under the Sales Tax Act, 1990 and Rules made thereunder: Q5
I. List the persons who are required to be registered. (05) (A-14)
II. Change in rate of tax during a tax period. (04)
(b) There are certain food items in the inventory of XY Limited (XYL) which were returned by
the customers after the expiry date. Specify the procedure which must be followed under the
Sales Tax Rules, 2006 if XYL wishes to destroy these items. (03)
2 Saleem is registered under the Sales Tax Act, 1990 and is engaged in the business of export and Q6
distribution of electronic appliances. (S-15)
Required:
Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, advise Saleem on
the following matters:
(a) any six situations in which input tax is not allowed to be adjusted against the output tax
liability. (06)
(b) exports which are outside the purview of zero rating. (03)
(c) eligibility for a refund if input tax is paid in excess of the output tax payable for the month.
(02)
(d) concept of provisional and final adjustment in relation to ‘Apportionment of input tax’. (02)

3 (a) Under the provisions of the Sales Tax Act, 1990 explain the following: Q6
I. Input tax in relation to a registered person. (03) (A-15)
II. Supply. (04)
(b) Baber Associates, who is registered with the Inland Revenue Department for sales tax
purposes, has supplied a heavy duty motor to Mubarak Enterprises on one month’s credit.
However, due to sharp decline in petroleum prices, the price of the motor has reduced by 10%
in the local market. Upon request from Mubarak Enterprises, Baber Associates has finally
agreed to reduce the price of motor by 8%. In view of the Sales Tax Rules, 2006 describe the
procedure which may be followed by both the parties to give effect to the above price change.
(03)
4 Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, briefly describe Q6
the following: (S-16)
(a) How and under what circumstances the Inland Revenue Department may recover the
amount of sales tax from a person without issuing him a show cause notice. (04)
(b) Rule relating to change in the particulars of registration other than the change of business
category. (05)
(c) What evidence(s) a person may be required to submit if he is applying for registration as a
manufacturer on shared premises. (02)
5 (a) Under the Sales Tax Act, 1990 and Rules made thereunder, briefly describe the concept of Q6
‘Residual input tax’. How it differs from ‘Residual input tax credit’? (03) (A-16)
(b) Under the provisions of the Sales Tax Act, 1990 enumerate any four features distinguishing
the concept of ‘Zero rating’ from ‘Exempt supply’. (04)

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(c) Identify the records which a registered person making taxable/exempt supplies is required
to maintain at his business premises or registered office under the Sales Tax Act, 1990. (Note:
details of contents not required). (04)
6 (a) Under the provisions of Sales Tax Act, 1990 and Rules made thereunder, identify the Q8
circumstances in which: (S-17)
(i) a registered person is not allowed to reclaim or deduct input tax paid. (06)
(ii) a registered person may be liable for deregistration. (03)
(b) On 2 June 2016, Abid Limited inadvertently issued a tax invoice with an incidence of sales
tax amounting to Rs. 25,000 as against the applicable tax of Rs. 45,000. The error was detected
on 15 February 2017 i.e. after expiry of 180 days. Advise Abid Limited in the light of Sales Tax
Rules, 2006. (04)
7 Zubair has recently been registered under the Sales Tax Act, 1990. You are required to advise Q7
him on the following matters: (A-17)
(a) Type of exports which are outside the purview of zero rating. (03)
(b) Eligibility for a refund if input tax is paid in excess of output tax payable for the month. (03)
(c) The conditions required to be fulfilled for filing a revised return. (02)
(d) Concept of provisional and final adjustment in relation to ‘Apportionment of input tax’. (02)
(e) How to deal with change in rate of tax during a tax period. (04)
8 Under the provisions of the Sales Tax Act, 1990: Q6
(a) (S-18)
List the exceptions to the following general rule:
I. Where the taxable supplies are made to a person who has not obtained registration number,
there shall be charged, levied and paid a further tax at the rate of 2% of the value in addition to
the normal rate of 17%. (03)
II. Goods exported shall be charged to tax at the rate of zero percent. (03)
(b)
Explain the term ‘Temporary registration’. Briefly discuss the rights, obligations and
responsibilities of a person who has obtained temporary registration. (06)
9 (a) Q6
Under the Sales Tax Act, 1990 and Rules made thereunder, briefly describe: (A-18)
(i) temporary sales tax registration and rights, obligations and responsibilities of a person
holding temporary registration. (05)
(ii) differences between rules applicable to exempt and zero rated supplies. (04)
(iii) the provisions related to excess/additional amount of sales tax collected by a registered
person. (03)
(b)
Where a Commissioner of Inland Revenue, having jurisdiction, is satisfied that a registered
person has issued fake invoices, evaded tax or committed tax fraud, he may suspend the
registration of such person without prior notice, pending further inquiry.
Under the Sales Tax Act, 1990 and Rules made thereunder, state any four bases of such
satisfaction which allow the Commissioner to suspend the registration as described above.
(03)

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10 (a) Briefly discuss the situations under which the following are required to be registered under Q6
the Sales Tax Act, 1990 and Rules made thereunder: (S-19)
(i) Cottage industry. (02)
(ii) Retailer. (01)
(b) Under the provisions of Sales Tax Act, 1990 and Rules made thereunder, identify the
circumstances in which a registered person may be liable for deregistration. (03)
(c) Bashir (Private) Limited (BPL) was incorporated on 1 January 2019 and registered with sales
tax department on 1 February 2019. BPL is in process of submitting its first sales tax return for
the month ended 28 February 2019. The finance department has identified following
transactions which took place before registration:
I. Goods costing Rs. 5 million were purchased from a registered supplier. 80% of the goods
remained unsold as at 1 February 2019. The supplier charged sales tax at the rate of 17%. (03)
II. Advance payment of Rs. 2.5 million was received on 15 January 2019 for the supply of
taxable goods to a registered person. The goods were delivered in February 2019. (02)
11 (a) Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, briefly Q6
describe the treatment of the following: (A-19)
• Recording of partial payments received in advance during a tax period in respect of both
taxable and exempt supplies. (02)
• Change in rate of tax during a tax period. (04)
(b) There are certain goods returned by the customer as they are unfit for consumption and
the seller has no option but to destroy them. Specify the procedure which must be followed by
a registered person under the Sales Tax Rules, 2006 for the destruction of such goods. (02)
(c) Who is required to file the following sales tax returns? Also mention the due date of filing of
these returns.
(i) Monthly return (ii) Special return
(iii) Final return (iv) Annual return. (04)
12 Raheel, an unregistered person, runs a garment shop in the posh area of Karachi. He has Q7
received a notice from the Commissioner Inland Revenue requiring him to register with the (S-20)
sales tax authorities within 30 days.
Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, advise Raheel
regarding the following:
(i) Whether the Commissioner is justified in issuing the notice to him. (03)
(ii) Would it be necessary for him to respond to the notice. (04)
Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, discuss the
following:
(i) Difference between zero rated supplies and exempt
supplies. (04)
(ii) How and under what circumstances the Inland Revenue Department may
recover the amount of sales tax from a person without issuing him a show cause notice. (04)
(iii) Concept of provisional and final adjustments in relation to ‘Apportionment of input tax’.
(02)

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13 Sun Associates (SA) has recently been registered with the Inland Revenue Department under Q5
the Sales Tax Act, 1990. (A-20)
Required:
Under the Sales Tax Act, 1990 and Rules made thereunder,
(a) identify the documents which SA may require for claiming/adjusting the input tax relating
to the following activities:
(i) supply of taxable goods. (01)
(ii) import of goods into Pakistan. (02)
(iii) goods purchased in an auction. (02)
(b) state the requirements relating to retention of records and documents that SA should
comply with. (02)
14 Rapid Associates (RA) has been registered under the Sales Tax Act, 1990 since 2014. During the Q6
month of June 2020, RA issued fake sales tax invoices amounting to Rs. 5 million to one of its (A-20)
customers. Apart from this, RA has always been in compliance with all the regulations of the
Sales Tax Act, 1990.
Required:
Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, discuss the
consequences which RA may have to face due to issuance of fake invoices. (06)
15 (a) Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, briefly explain Q7
the following: (S-21)
(i) how and under what situations the Inland Revenue Department may recover the amount of
sales tax from a person without issuing him a show cause notice. (04)
(ii) extra tax and capacity tax.
(b) On 4 February 2021, it was revealed to Fahad that he inadvertently reported an output
sales tax of Rs 27,000 in a tax invoice, issued on 5 July 2020, to a customer instead of Rs.
72,000 in his sales tax return for July 2020. (05)
16 (a) Q6
In the light of the provisions of Sales Tax Act, 1990 and Rules made thereunder, briefly explain (A-21)
as to the chargeability/adjustment of sales tax in respect of each of the following independent
matters:
(i) Free provision of taxable goods to the company’s CEO as per the terms of his employment.
(ii) Free replacement of defective parts in the case of taxable goods, sold under warranty.
(iii) Payment of machine fuel by one of the directors using his own credit card. The machine is
used to manufacture taxable goods.
(iv) Taxable goods sold on instalment to a customer at a price inclusive of mark up.
(v) Advance payment received against taxable goods to be supplied to a registered person in
next month.
(vi) Local supplies of goods manufactured by a cottage industry.
(vii) Material purchased for the construction of office building.
(viii) Electronic cash register purchased for retail outlet. (08)

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(b) Under the Sales Tax Act, 1990 and Rules made thereunder, briefly describe temporary sale
tax registration. Also state the rights, obligations and responsibilities of a person holding
temporary registration. (05)
17 Following are the independent transactions carried out by different enterprises during the Q 5a
month of February 2022: (S-22)
(i) Taxable goods of Rs. 800,000 were sold to one of the dealers. The amount was net of 20%
trade discount which was in accordance with market norms. The discounted price was not
shown on the tax invoice.
(ii) Taxable goods of Rs. 1,500,000 were used for internal testing and evaluation purposes.
40% of these goods were locally procured while remaining 60% of these goods were own
manufactured.
(iii) Advance of Rs. 600,000 was received for goods to be delivered in April 2022.
(iv) 1,000 units of taxable goods listed in the Third Schedule were sold at a unit price of Rs.
5,000. Retail price of each unit was Rs. 6,000.
(v) New parts of Rs. 1,200,000 were issued free of cost to replace the defective parts under
warranty.
(vi) Taxable goods of Rs. 400,000 were sold at credit terms of 2/10, n/30. Customer paid the
amount within ten days and availed the discount.
Required:
In the light of the provisions of the Sales Tax Act, 1990 and Rules made thereunder, state the
value of supply chargeable to tax for the month of February 2022. Also state
the reason for your treatment. (08)

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Sales Tax Numerical

1. Ali Trading Company (ATC) is registered under the Sales Tax Act, 1990 and is engaged in the business of
manufacture and supply of consumer goods. Following information has been extracted from the records of
ATC for the month of August 2014. Q6
Rupees (A-14)
Supplies
Local supplies to wholesalers 14,500,000
Local supplies to distributors 10,254,980
Exports 18,650,000
Local supplies to registered retailers 980,000
Supply of exempted goods 5,500,000

Purchases
Local purchases from registered persons 50,982,000
Local purchases from un-registered persons 9,200,000
Following additional information is also available:

(i) Supplies amounting to Rs. 540,000 were returned by registered retailers.

(ii) An early settlement discount of Rs. 250,000 was given to local distributors.
(iii) An amount of Rs. 500,000 was received from Imran Associates, representing 25% advance
payment in respect of supply of a special order. ATC will supply this order in November 2014.
(iv) Goods pledged with a bank, were disposed of by the bank for Rs. 4 million in satisfaction of
debt owed by ATC.
(v) Sales tax credit brought forward from previous month amounted to Rs. 854,700.
(vi) Proper debit and credit notes have been issued wherever necessary.

Sales tax is payable at the rate of 17%. All the above figures are exclusive of sales tax.
Required:
Under the provisions of the Sales Tax Act, 1990 compute sales tax payable/refundable and input tax credit to
be carried forward, if any, for August 2014. (14)

2. Bashir is registered under the Sales Tax Act, 1990 and is engaged in the business of exportand supply of
consumer goods. Following information has been extracted from his records for the month of February 2015.
Q7
Rupees
Supplies (S-15)
To registered persons 25,980,000
To unregistered persons 2,500,000
Exempt supplies 1,874,000
Export to USA 2,000,000
Purchases
Purchases from registered person 21,710,000
Import of a machine 2,500,000

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Following additional information is also available:

(i) supplies to registered persons include goods amounting to Rs. 300,000 which weresupplied to
an associated company at a special discount of 25%.
(ii) input tax amounting to Rs. 55,900 was paid in January, 2015 but inadvertently it couldnot be
claimed in the return for January 2015.
(iii) a registered supplier had supplied goods worth Rs. 500,000 to Bashir in February 2015.However,
Bashir did not receive the sales tax invoice from the supplier.
(iv) the imported machine was put into operation during February, 2015.
(v) sales tax credit of Rs. 410,000 is to be brought forward from January 2015.
Sales tax is payable at the rate of 17%. All the above amounts are exclusive of sales tax,wherever
applicable.
Required:
Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, compute salestax
payable/refundable and input tax credit to be carried forward, if any, for tax period February 2015.
(13)
3. Rahbar is registered under the Sales Tax Act, 1990 and is engaged in the business of manufacture and supply
of specialized equipment. Following information has been extracted from his records for the month of August
2015. Q5
(A-16)

Following information is also available:

(i) Purchases from local registered persons include the following:
 Material worth Rs. 1,600,000 against which a discrepancy has been indicatedby the
CREST.
 Raw-material of Rs. 2,000,000 purchased from AB Enterprises on 2 August 2015.The
payment was made on the same day by pay order. On 15 August 2015, AB Enterprises
informed Rahbar that with effect from 1 August 2015 their registration has been
suspended by the Commissioner Inland Revenue.
 Wires and cables of Rs. 500,000 and electrical and sanitary fittings ofRs. 900,000.
These items were used in the renovation of a factory building.
(ii) An electronic cash register was purchased from High Tech Limited at Rs. 250,000.
(iii) On 18 August 2015 Rahbar acquired a machine on operating lease from Aroma Limited. The
total lease rentals payable over the lease term of two years areRs. 3,500,000. The fair
value at the inception of the lease amounted to Rs. 3,100,000.
(iv) On 28 August 2015, Rahbar paid sales tax of Rs. 170,000 on electricity bill.

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(v) Own manufactured equipment worth Rs. 375,000 was used for internal testing purposes in
R&D department.
(vi) Rahbar made free replacement of faulty parts on request from three of his customers. These parts
were covered under warranty and had a market value of Rs. 175,000.

All the above figures are exclusive of sales tax, wherever applicable. Sales tax is payable atthe
rate of 17%.
Required:
Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, compute the amount of
sales tax payable by or refundable to Rahbar and the amount of sales tax to be carried forward, if any, for
the tax period August 2015. (18)

Note: show all relevant exemptions, exclusions and disallowances.

4. Mulaqat Associates (MA), an association of persons, is registered under the Sales Tax Act, 1990 and is
engaged in the business of manufacture and distribution of various products. Following information has been
extracted from MA’s records for February 2016: Q5
Rupees (S-16)
Supplies:
Jet fuel to Pak Airways proceeding to Oslo 800,000
Taxable goods to registered customers 500,000
Taxable goods to un-registered customers 375,000

Purchases:
Taxable goods from registered suppliers 650,000
Taxable goods from un-registered suppliers 150,000
Exempt goods from registered suppliers 100,000
Imports – raw material 280,000
Following information is also available:

(i) Taxable goods purchased from registered suppliers include furniture of Rs. 45,000 which was
acquired for use in the office of marketing manager.
(ii) Imports include raw materials worth Rs. 125,000 for the manufacture of shaving cream,
covered under Third Schedule. However, en route from port to MA’s warehouse in Uthal a
serious damage was caused to the consignment. MA receivedinsurance claim of Rs. 90,000 after
surrendering the right of disposal of consignment in favour of the insurance company.
(iii) MA purchased 150 bags of cement, covered under Third Schedule, for the construction of a
bungalow for managing partner. Cement was purchased at the wholesale price of Rs. 400 per
bag. However, the retail price was Rs. 500 per bag.
(iv) Advance of Rs. 268,000 was made to Nomi Corporation for the purchase of packingmaterials.
(v) Taxable goods to un-registered customers include goods worth Rs. 200,000 sold to cottage industry
in Bela. The rest of the goods were sold to educational institutions in Zhob.
(vi) On 15 February 2016 MA signed an agreement with Bali Traders (BT), a registeredcustomer,

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for the sale of goods worth Rs. 290,000. On 20 February 2016 the goodswere made available
to BT. However, BT took the delivery of goods on5 March 2016.
(vii) MA sold goods worth Rs. 52,000 to one of its customers on two months credit. Theamount was
inclusive of 4% mark-up.
(viii) MA distributed free samples of one of its new detergents Zeta among corporate clients. The
value of these samples amounted to Rs. 65,000.
(ix) MA issued a debit note of Rs. 35,000 to Hali Brothers to rectify a mistake in MA’s sales invoice.
The invoice was originally raised in November 2015.
(x) On 1 February 2016 MA sold 4,000 packs of a new caramel ice cream, covered under Third
Schedule, at a discounted price of Rs. 100 per litre pack. The retail price of theice cream was Rs.
160 per litre pack.
(xi) Sales tax credit brought forward from January 2016 amounted to Rs. 245,000. This amount was
inclusive of input tax of Rs. 120,000 paid on a chemical which could not be used before the expiry
date and was consequently destroyed in February 2016.
All the above figures are exclusive of sales tax, wherever applicable. Sales tax is payable atthe rate
of 17%.
Required:
Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, compute the amount of sales
tax payable by/refundable to MA and the amount of sales tax to be carried forward, if any, for the tax period
February 2016. (18)
Note: show all relevant exemptions, exclusions and disallowances.

5. Samaaj Associates (SA) is registered under the Sales Tax Act, 1990 and is engaged in the business of
manufacturing, trading and export of electronic, chemical and other consumer goods. Following information has
been extracted from SA’s records for the month of August 2016.
Q5
(A-16)

Packing material from registered persons include material worth Rs. 150,000 which was used for packing
electric motors. On 31 August 2016 these motors were still part of SA’s unsold stock.
Following transactions pertaining to August 2016 are not included in the above table:
(i) Sales tax of Rs. 70,000, Rs. 45,000 and Rs. 68,000 was paid in cash on electricity, gas and telephone bills
respectively.
(ii) SA purchased high quality cables and wires worth Rs. 250,000 from a registered supplier for the installation
of local machinery purchased from un-registered suppliers.

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(iii) Three cartons of imported shampoo, falling under third schedule, were supplied to un- registered
distributors at a price of Rs. 110,000 per carton. The distributors normally supply such shampoo to retailers at
a price of Rs. 135,000 per carton.
(iv) Five electric kettles worth Rs. 75,000 were purchased for use in the offices of factory manager and first
line-supervisors of production workers.
(v) On 5 August 2016 SA received advance of Rs. 600,000 against supply of electric shavers to Bari Electronics.
SA agreed to deliver the goods in September 2016.
(vi) On 25 August 2016 SA issued discount coupons worth Rs. 450,000 to its customers for participating in
grand annual sales exhibition to be held in December 2016.
Other related information is as under:
(i) On 10 February 2016 SA purchased liquid nitrogen worth Rs. 300,000 from Mughal Chemicals (MC), a
registered supplier, on credit. On 15 August 2016 SA paid the outstanding amount to MC by way of a crossed
cheque drawn on SA’s bank account.
(ii) In April 2016 SA inadvertently charged sales tax of Rs. 58,000 instead of 85,000 on supply of chemicals to
one of its registered customers. So far, SA has not obtained permission from the Commissioner Inland
Revenue for revision of return.
(iii) In July 2016 SA claimed input tax of Rs. 80,000 on purchase of hydrochloric acid from JB Traders. The
supplier has not yet deposited the amount of sales tax collected from SA in Government treasury.
In July 2016 the excess of input tax over output tax amounted to Rs. 20,000. Whereas, unadjusted input tax in
excess of 90% of output tax amounted to Rs. 10,000.
All the above figures are exclusive of sales tax, wherever applicable. Sales tax is payable at the rate of 17%.
Required:
Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, compute the amount of sales tax
payable by or refundable to SA and the amount of sales tax to be carried forward, if any, for the tax period
August 2016.
Note: Show all relevant exemptions, exclusions and disallowances. Ignore value addition tax payable at
import stage.

6. Jahangir Ali (JA) is registered under the Sales Tax Act 1990. JA runs multiple businesses.Following information
has been extracted for the month of February 2017. Q7
(S-17)
Rupees
Supplies
Taxable goods exported to Qatar 100,000
Taxable goods to registered customers 750,000
Taxable goods to unregistered customers 550,000

Purchases
Taxable goods from registered suppliers 3,000,000

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Exempt goods from registered suppliers 70,000

Taxable goods from unregistered suppliers 95,000

The following further information is available:

(i). Taxable goods supplied to registered customers include goods amounting to Rs. 300,000 supplied to an
associated company at a special discount of 25%.
(ii). Taxable goods supplied to unregistered customers include goods worth Rs. 100,000 supplied to Saleem
Brothers (SB). JA did not charge any sales tax from SB as it has submitted an undertaking that it is a cottage
industry and exempt from sales tax under the Sixth Schedule of the Sales Tax Act, 1990.
(iii). Taxable goods purchased from registered suppliers include:
• goods worth Rs. 320,000 purchased from Akram Limited who was blacklisted on 25 February 2017
due to issuance of flying invoices.
• goods purchased from ZA Traders amounting to Rs. 30,000. ZA Traders did not declare this amount
in its tax return for the month of February 2017.
• a new machine purchased for Rs. 500,000 which was commissioned into operation during February
2017.
• office equipment of Rs. 200,000, purchased for the warehouse.
(iv). Goods pledged with a bank were sold by the bank in an auction for Rs. 1,000,000. The normal selling price
of these goods was Rs. 1,200,000.
(v). Excess of input tax over output tax brought forward from January 2017 was Rs. 110,000. Rate of sales tax is
17%. All figures are exclusive of sales tax.
Required:
Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, compute the amount of sales tax
payable by or refundable to JA and the amount of sales tax to be carried forward, if any, for the tax period
February 2017.

7. Cyma Associates (CA) is registered under the Sales Tax Act, 1990, as manufacturer-cum- distributor-cum-
retailer. Following information has been extracted from its records for the month of August 2017. Q6
(A-17)
Supplies
Taxable goods to registered persons 15,000,000
Taxable goods to unregistered persons 2,800,000
Exports 1,500,000
Exempt supplies 1,700,000

Purchases
Taxable goods from registered suppliers 20,000,000
Taxable goods from unregistered suppliers 1,800,000
Exempt goods from registered suppliers 400,000
Fixed assets (machinery) from a registered supplier 1,000,000

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The following additional information is available for August 2017:

(i). Supply of taxable goods to registered persons include the following:

• Goods invoiced at Rs. 325,000 (net of special discount of Rs. 125,000) sold to a government official.
• On 1 August 2017, CA launched ‘Halloween Tooth Brush’ which is covered under 3rd schedule. The retail
price of the tooth brushes is Rs. 100 each. However, being the first month of launching, it was sold at a
discounted price of Rs. 75 each. 4,000 tooth brushes were sold in August 2017.

(ii). Exports include supply of taxable goods of Rs. 500,000 to a retailer in Export Processing Zone.
(iii). Exempt supplies include distribution of free samples of exempt goods among the vendors.
Value of such goods amounted to Rs. 80,000. (iv). Purchases from registered suppliers include:
• Material worth Rs. 350,000 the payment of which was made by depositing cash directly in the business bank
account of the supplier.
• Material worth Rs. 800,000 against which a discrepancy has been indicated by the CREST.
• an amount of Rs. 2,000,000 paid for purchase of raw material. However, only 30% of the goods were
supplied during August for which sales tax invoice has been issued by the supplier.
(v). On 1 August 2017, CA executed an agreement with Majeed Sons (MS) for sale of goods worth Rs. 225,000.
The agreement empowers MS to obtain delivery of these goods anytime it likes.
(vi). Supplies returned by different registered persons amounted to Rs. 756,000. Proper debit and credit notes
were raised within the specified time.
(vii). The auditors have proposed a provision against obsolete and expired stock of Rs.
285,000 which is lying in CA’s warehouse since January 2016.
(viii). Machinery purchased during the month was commissioned into operations on 31 August 2017.
(ix). Excess of input tax over output tax in July 2017 amounted to Rs. 75,000.
Except where otherwise specified, all figures are exclusive of sales tax. Rate of sales tax is 17%.
Required:
Compute the sales tax liability of CA for the month of August 2017.
8. Faiz Associates (FA) is a partnership concern and registered under the Sales Tax Act, 1990 asmanufacturer-
cum-distributor. Following information has been provided by FA for the monthof January 2018 Q8
(S-18)
Rupees
Supplies
Taxable goods to registered customers 3,450,000
Taxable goods to un-registered customers 1,000,000
Consumable goods supplied on PIA’s international flight 500,000
Export 700,000

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Purchases
Taxable goods from registered suppliers 2,000,000
Taxable goods from un-registered suppliers 450,000
Exempt goods from registered suppliers 600,000

Input tax brought forward from December 2017 265,000

Additional information:
(i). Supply of taxable goods to registered customers include the following:
• Goods amounting to Rs. 80,000 sold to Hafiz Brothers (HB) on 31 January 2018. HB started business in
January 2018 and had filed an application for registration under the Sales Tax Rules 2006 on 30 January 2018.
However, no sales tax registration number was issued till 31 January 2018.
• Goods having market value of Rs. 600,000 which were supplied to Parveen Limited, an associated company,
for Rs. 500,000.
• An invoice erroneously issued for Rs. 450,000 whereas the correct amount of the invoice was Rs. 540,000.
• Sale to Ghalib Corporation of goods worth Rs. 225,000. The contract for sale has been signed but neither
invoice was issued nor any delivery and payment was made in January 2018.
(ii). Purchases from registered suppliers include:
• Purchase of two air-conditioners amounting to Rs. 150,000 for FA’s new office.
• An invoice of Rs. 500,000 dated 22 January 2018 issued by Taqi Corporation (TC). However, TC was
blacklisted by the Commissioner on 6 February 2018.
(iii). FA destroyed certain goods worth Rs. 45,000 after following the due process under the Sales Tax Rules,
2006. Input tax on these goods was claimed in December 2017.
(iv). Free replacement of defective parts costing Rs. 400,000 relating to goods which were sold under 1-year
warranty. The market value of such parts was Rs. 550,000.
(v). A debit note for Rs. 100,000 issued by a customer in respect of goods returned was duly settled and the
relevant credit note has been issued within the stipulated time.
(vi). During the month, FA paid Sindh Sales Tax worth Rs. 8,500 on franchise services.
Under the Sindh Sales Tax Laws, such tax is not an admissible credit.
All the above figures are exclusive of sales tax, wherever applicable. Sales tax is payable at the rate of 17%.
Required:
Compute sales tax payable by or refundable to Faiz Associates along with input tax to be carried forward, if
any, in the sales tax return for the month of January 2018.
Note: Show all relevant exemptions, exclusions and disallowances.
9. Abid Khan is registered for sales tax purposes and is engaged in the manufacturing of electrical appliances in
Multan. His sales and purchases for the month of August 20X8 are summarized below:
Q8
Rupees (S-18)
Supplies

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Taxable goods to registered customers 15,118,000

Taxable goods to un-registered customers 10,150,000
Exports 5,000,000
Exempt supplies 4,500,000
Purchases
Taxable goods from registered suppliers- for taxable 25,000,000
supplies
-for exempt supplies 1,500,000
Packing materials from un-registered suppliers 9,500,000

Additional Information:

(i). Supplies of taxable goods to registered customers include

 an amount of Rs. 4,225,000 against sale of electric toasters at a trade discount of35%. As per
normal business practice, he allows a discount of 10% only.
 goods supplied against which advance payment of Rs. 2,500,000 had been receivedin June 20X8.
(ii). Taxable supplies returned by different registered customers amounted to Rs. 900,000.
Proper debit and credit notes were raised within the specified time.
(iii). A plant costing Rs. 2,700,000 was commissioned into operation on 15 August 20X8. The plant is being
used for taxable supplies only.
(iv). An electricity bill of Rs. 2,600,000 was paid in cash which includes sales tax amountingto Rs. 350,000.
(v). Input tax brought forward from July 20X8 is Rs. 595,000.
All the above figures are exclusive of sales tax, wherever applicable. Sales tax is payable at therate of 17%.
Required:
Compute sales tax payable by or refundable to Abid Khan along with input tax to be carriedforward/refundable, if
any, in the sales tax return for the month of August 20X8.
Note: Show all relevant exemptions, exclusions and disallowances.

10. MH Associates (MHA) is registered under the Sales Tax Act, 1990 as a manufacturer, distributor and
retailer. Following information has been provided by MHA for the month of August 20X9:
Q7
(A-19)

Additional information:

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(i) Supplies of taxable goods to registered persons include an invoice erroneously issued to Rasheed for Rs.
270,000 whereas the correct amount of invoice was Rs. 720,000.
(ii) Supplies of taxable goods to unregistered persons include sale of Rs. 365,000 to end consumers.
(iii) Purchases from registered suppliers of taxable goods include:
• an amount of Rs. 1,800,000 paid for purchase of raw material. However, only 40% of the goods
were supplied during August 20X9.
• goods worth Rs. 1,200,000 against which a discrepancy has been indicated by the CREST.
(iv) Two machines A and B costing Rs. 900,000 and Rs. 1,200,000 respectively were acquired and
commissioned into operation on 15 August 20X9. Machine A has been used for taxable supplies only whereas
Machine B has been used for exempt supplies only.
(v) Input tax amounting to Rs. 120,000 was paid on 15 March 20X9 but inadvertently it could not be claimed in
the return for March 20X9 and thereafter.
(vi) An electricity bill of Rs. 670,000 was paid in cash which included sales tax amounting to Rs. 95,000.
(vii) Taxable supplies of Rs. 90,000 were returned by the registered customers during the period. Proper
debit/credit notes were issued within the specified time.
(viii) Sales tax credit brought forward from previous month amounted to Rs. 255,000.
Except where otherwise specified, all figures are exclusive of sales tax. Rate of sales tax is 17%.
Required:
In the light of the provisions of the Sales Tax Act, 1990 and Rules made thereunder, compute the amount of
sales tax payable by or refundable to MHA and input tax to be carry forward, if any, for tax period August
20X9. (16)
11. Following information has been extracted from the records of four registered persons for the month of
February 2019:
Q7
(S-19)

All the above figures are exclusive of sales tax, wherever applicable. Sales tax is payable at the rate of 17%.
Required:
In the light of the provisions of the Sales Tax Act, 1990 and Rules made thereunder, compute the amount of
sales tax payable by or refundable to each of the above registered persons and input tax to be carry forward, if
any, for the tax period February 2019. (15)

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12. Following information has been extracted from the records of two different personsregistered under
the Sales Tax Act, 1990 for the month of February 2020 Q6
Registered persons (S-20)
Taha Shan
--------- Rupees ---------
Purchases
Taxable supplies from registered persons - 11,000,000
Taxable supplies from unregistered persons 3,500,000 -
Exempt goods - 3,000,000
Fixed assets (machinery) from a registered supplier (Note A) 5,000,000 6,000,000

Supplies
Taxable supplies to registered persons - 10,000,000
Taxable supplies to unregistered persons 2,000,000 -
Exempt supplies to registered persons 3,800,000 5,500,000
Zero rated supplies 2,500,000 -

Note A:
In case of Taha, the machinery has been used for exempt and zero rated supplies. In case of Shan, the
machinery has been used for taxable supplies only.
All the above figures are exclusive of sales tax. Sales tax is payable at the rate of 17%.
Required:
In the light of the provisions of the Sales Tax Act, 1990 and Rules made thereunder,
compute the amount of sales tax payable by or refundable to each of the above registered
persons and input tax to be carried forward, if any, for the tax period February 2020.
13. JF Associates (JFA) is registered under the Sales Tax Act, 1990 as a manufacturer.Following
information has been provided by JFA for the month of August 2020: Q7
(A-20)
Rupees
Supplies
Taxable goods to registered persons 7,500,000
Taxable goods to unregistered persons 1,300,000
Exempt goods to unregistered persons 1,000,000
Exports to Saudi Arabia 500,000

Purchases
Taxable goods from registered persons 7,400,000
Taxable goods from unregistered persons 1,100,000
Fixed assets (machines) from a registered supplier 2,500,000

Additional information:

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(i) Supplies of taxable goods to registered persons include:

goods worth Rs. 560,000 sold to a new customer at discount of 20%. JFA normallyallows
discount of 10% to its customers.
an invoice issued to Qasim erroneously for Rs. 590,000 whereas the correctamount
of invoice was Rs. 950,000.
(ii) Supplies of taxable goods to unregistered persons include sales of Rs. 28,500 toend
consumers.
(iii) Exempt supplies of Rs. 50,000 were returned by the unregistered customers during theperiod.

(iv) Two machines A and B costing Rs. 1,500,000 and Rs. 1,000,000 respectively were acquired
and commissioned into operation in August 2020. Machine A has been used for the
manufacture of taxable (local) as well as exempt supplies whereas Machine B
has been used only for manufacture of export supplies.
(v) Input tax on an invoice of Rs. 1,200,000 was paid on 15 March 2020 but inadvertentlyit could
not be claimed in the return for March 2020 and thereafter.
(vi) Electricity bill of Rs. 859,950 was paid in cash. The bill was inclusive of sales tax ofRs.
124,950.
(vii) Sales tax credit brought forward from previous month amounted to Rs. 425,000.

Except where otherwise specified, all figures are exclusive of sales tax. Rate of sales tax is
17%. Proper debit/credit notes were issued within the specified time wherever required.
Required:
In the light of the provisions of the Sales Tax Act, 1990 and Rules made thereunder, compute the amount of sales tax
payable by or refundable to JFA and input tax to be carried forward, if any, for tax period August 2020.

14. Hadi Associates (HA), a sole proprietor business, is registered under the Sales Tax Act, 1990 as
manufacturer cum importer and is engaged in the manufacturing and supply of consumer products. Following
information has been extracted from HA’s records for the month of February 2021:
Q6
Rupees (S-21)
Supplies
Taxable goods to registered customers 2,750,000
Taxable goods to un-registered customers 1,050,000
Exports of taxable goods to Saudi Arabia 1,500,000

Purchases
Taxable goods from registered suppliers 1,890,000
Taxable goods from un-registered suppliers 1,000,000
Packing material from un-registered suppliers 445,000

Additional information:

(i) Supplies of taxable goods to registered customers include:

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 goods worth Rs. 225,000 (net of special discount of Rs. 75,000). These goods were sold to an associated
undertaking. The special discount was not reflected on the invoice.
 goods worth Rs. 120,000 supplied to a customer in Multan. HA had received full payment against the
goods in November 2020.
(ii) Supplies of taxable goods to unregistered customers include sales of Rs. 130,000 to end consumers.
(iii) Purchases from registered suppliers include:
 goods worth Rs. 100,000 purchased from Haq Enterprises on 5 February 2021. On 20 February 2021,
Haq Enterprises informed HA that with effect from 1 February 2021, its registration has been
suspended by the Commissioner
 Inland Revenue.
 goods worth Rs. 85,000 purchased in cash.
 goods worth Rs. 50,000 purchased from AB Traders. The supplier did not declare the sale of these
goods in its tax return for the month of February 2021.
(iv) Taxable goods worth Rs. 150,000 were used in the business meeting held for the promotion of HA’s
business.
(v) A machine costing Rs. 2,500,000 was acquired and commissioned into operation in February 2021. The
machine was used for both taxable and zero rated supplies.
(vi) Electricity bill of Rs. 90,000 for the month of September 2020 was paid in October 2020. However, related
input tax of Rs. 13,000 has still inadvertently remained unclaimed
(vii) The auditors have proposed to make a provision of 50% against obsolete and expired
stock of Rs. 350,000. The goods are lying in warehouse since July 2017. Input tax relating to this stock was
claimed in July 2017.
(viii) Sales tax credit of Rs. 415,000 has been brought forward from previous tax period.
All the above figures are exclusive of sales tax, except where it is specified otherwise. Sales tax is payable at
the rate of 17%.
Required:
In the light of the provisions of the Sales Tax Act, 1990 and Rules made thereunder, compute the amount of
sales tax payable by or refundable to HA and input tax to be carried forward, if any, for the tax period February
2021. (16)
15. Mehrban Associates (MA) is registered under the Sales Tax Act, 1990. MA is engaged in the Q7
business of manufacturing and supplying of various consumer goods. Following information is
(A-21)
available from MA’s records for the month of August 2021:

Rupees
Purchases
Taxable goods from registered persons 4,960,000
Taxable goods from unregistered persons 1,400,000
Exempt goods from unregistered persons 520,000

Supplies

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Taxable goods to registered persons 8,650,000

Taxable goods to unregistered persons 1,560,000
Exempt goods to local unregistered persons 1,740,000
Export of taxable goods to UAE 1,300,000
Export of exempt goods to UAE 1,900,000

Additional information:
(i) Taxable goods from registered persons include:
 materials worth Rs. 296,000, which were exclusively used for manufacturingexempt supplies.
 materials worth Rs. 675,000, which were exclusively used for manufacturingexport related
goods.
 goods worth Rs. 150,000 which were purchased in cash from a supplier.
 500 kg of tea purchased at a cost of Rs. 360,000 in one kg packing, covered under Third Schedule. Retail
price of tea per kg is Rs. 900. By end of August 2021, 300 kg were supplied to an unregistered
wholesaler at a price of Rs. 790 per kg.

(ii) Taxable goods supplied to unregistered persons include goods worth Rs. 320,000 which were sold to a
customer who did not provide his CNIC or NTN details. Thesegoods were purchased from a registered
supplier for Rs. 275,000 during August 2021.

(iii) Following fixed assets were purchased during the month of August 2021:
Fixed assets Purchase cost (Rs.) Usage
To ensure quality standards of
Machine A 2,000,000 packing for exports
To manufacture taxable (local)
Machine B 3,000,000 as well as exempt (local) goods
Furniture and fittings 1,000,000 To use in office premises
(iv) Electricity bill of Rs. 959,450 was paid in cash. The bill was inclusive of sales tax ofRs. 154, 250.
(v) Sales tax credit brought forward from last month amounted to Rs. 1,137,580.
(vi) Input tax of Rs. 186,000 pertaining to purchase made on 1 February 2021 wasinadvertently
remain unclaimed.
All the above figures are exclusive of sales tax, except where it is specified otherwise. Salestax is payable at
the rate of 17%.

Required:
In the light of the provisions of the Sales Tax Act, 1990 and Rules made thereunder, compute the amount of
sales tax payable by or refundable to MA and input tax to be carried forward, if any, for the tax period August
2021. (Show all relevant exemptions, exclusions and disallowances) (17)

16. Kazmi Traders (KT) is registered under the Sales Tax Act, 1990. KT is engaged in thebusiness Q5b
of manufacturing and supply of paper products. Following information is available from KT’s
(S-22)
records for the month of February 2022:

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Rs. in million
Purchases
Taxable goods from registered persons (20% of these goods
320
were returned to suppliers)
Taxable goods from unregistered persons 32
Exempt goods from registered persons 56
Electrical and sanitary fittings (60% used in factory
17
building and 40% used in office building)
Plant and machinery 84

Supplies
Taxable goods to registered persons (10% of these goods
200
were returned by the customers)
Exports 98
Electricity bill paid in February 2022 includes sales tax of Rs. 1.36 million. 60% of the amount
was related to the factory building while remaining amount was related to the office building.

All the above figures are exclusive of sales tax, except where it is specified otherwise.Sales tax
is payable at the rate of 17%.

Required: In the light of the provisions of the Sales Tax Act, 1990 and Rules made
thereunder, compute the amount of sales tax payable by or refundable to KT and
input tax to be carried forward, if any, for the tax period February 2022. (Show all
relevant exemptions, exclusions and disallowances) (08)

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Suggested Solutions
(Source: ICAP Website)
Disclaimer
The suggested answers to examination questions have been developed by the Board of Studies of ICAP
based on rules, regulations, theories and practice as applicable on the date of examination, except as stated
otherwise. These answers are not meant to provide the assessment criteria against the particular
examination questions as the purpose of these suggested answers is only to guide the students in their
future studies for ICAP’s examinations, without in any way seeking to suggest a solution for the present
incumbents.
The Institute shall not be in any way responsible for an answer capable of being solved in some other way
or otherwise of the suggested answer nor would it carry out any correspondence in this regard.
Although reasonable care has been taken to ensure correctness in the preparation of these answers, the
Board of Studies does not take responsibility for any deviation of views, opinion or answers suggested by
any other person or persons. Similarly, the Council of the Institute of Chartered Accountants of Pakistan
assumes no responsibility for the errors or omissions in the suggested answers. Nevertheless, if any error
or omission is noticed, it should be brought to the notice of the Chairman Board of Studies for information.

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Chapter 01 | System of Taxation in Pakistan

1 1. The taxation system may also be utilized to achieve the following non-revenue objectives as
 To strengthen anemic enterprises by granting them tax exemptions or other conditions or
incentives for growth; To protect local industries against foreign competition by increasing
local import taxes;
 As a bargaining tool in trade negotiations with other countries; To counter the effects of
inflation or depression;
 To reduce inequalities in the distribution of wealth;
 To promote science and invention, finance educational activities or maintain and improve the
efficiency of local forces;
 To implement laws which eliminate discrimination among various elements in the
markets/businesses. To discourage certain undesirable sectors and activities.
 To documentation of the economy. To promote export of the country.
 To promote investment in listed companies.
 To promote information technology specially software houses.
 To promote culture of payment of donation to only organized and regulated institutions.
2 Non-revenue objectives:
Following are the five non-revenue objectives of taxation:
 To strengthen anaemic enterprises by granting them tax exemptions
or other conditions orincentives for growth;
 To protect local industries against foreign competition by increasing local
import taxes;
 As a bargaining tool in trade negotiations with other countries;
 To counter the effects of inflation or depression;
 To reduce inequalities in the distribution of wealth;
 To promote science and invention, finance educational activities or
maintain and improve theefficiency of local forces;
 To implement laws which eliminate discrimination among
various elements in themarkets/businesses.
3 The taxation system may also be utilized to achieve the following non-revenue objectives as
 To strengthen anemic enterprises by granting them tax exemptions or other conditions or
incentives for growth; To protect local industries against foreign competition by increasing
local import taxes;
 As a bargaining tool in trade negotiations with other countries; To counter the effects of
inflation or depression;
 To reduce inequalities in the distribution of wealth;
 To promote science and invention, finance educational activities or maintain and improve the
efficiency of local forces;
 To implement laws which eliminate discrimination among various elements in the
markets/businesses. To discourage certain undesirable sectors and activities.
 To documentation of the economy. To promote export of the country.
 To promote investment in listed companies.

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 To promote information technology specially software houses.

To promote culture of payment of donation to only organized and regulated institutions.

4 (a) Following are the indirect taxes under the Pakistani Taxation System.

(i) Custom Duty

Goods imported and exported from Pakistan are liable to rates of customs duties as prescribed in
Pakistan Custom Tariff.

(ii) Federal Excise Duty

Generally, federal excise duty is charged on the basis of excise value or retail price. However,
some items are chargeable to duty on the basis of weight or quantity. All exports are liable to Zero
per cent Federal Excise Duty.
(b) Objectives of tax laws in each case are specified below:
 Fair distribution of wealth
 Reduction in imports of unnecessary goods and balance of trade.
 To promote culture of payment of donation to only organized and regulated institutions
 Promote investment in listed companies
 To give incentives to underdeveloped areas.
 Revenue collection
 Documentation of economy
 Promotion of Exports
5 (a) Following are some broad principles for levy of taxes:

The Benefit Principle

This principle holds that the individuals should be taxed in proportion to the benefits they
receive from the governments and that taxes should be paid by those people who receive
the direct benefit of government programs and projects out of the taxes paid.
The Ability-to-Pay Principle
This principle holds that taxes should relate with the person’s income or the ability to pay,
that is, those with greater income or wealth who can afford to pay should be taxed.
Similarly, even rate of tax could increase with higher income.
The Equal-Distribution Principle
Income, wealth and transaction may be taxed at a fixed percentage; that is, people who earn
more and spend more should pay more taxes, but not pay a higher rate of tax

(b) (i) Custom Duty

Goods imported and exported from Pakistan are liable to rates of customs duties as
prescribed in Pakistan Custom Tariff.
(i) Federal Excise Duty
Generally, federal excise duty is charged on the basis of excise value or retail price.
However, some items are chargeable to duty on the basis of weight or quantity. All
exports are liable to Zero per cent Federal Excise Duty.
(iii) Sales Tax
Sales Tax is Levied on:
All goods imported into Pakistan, payable by the importers
All supplies made or services provided in Pakistan by a registered person.

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6 (a) Following are the different ways by which taxes can be used for the development of
country:
The Government can declare some areas as free zone, industrial zone, and economic zone and
provide tax incentives to such areas. Such incentives could attract businessman/industrialist who
may opt to establish business concerns/industrial units that would bring employment,
opportunities and overall prosperity in these
under developed areas.
Taxing the rich at higher rates while taxing the low income groups at lower tax
rates.
Imposition of high custom duty rates on luxury items or items which are also
manufactured in Pakistan. This promotes local manufacturers and industry.
Tax credits on charity/donations to promote welfare activities.
Tax exemptions to charity organization /educational institutions to promote these activities.
(b) Powers of the Provinces to legislate on taxes
Following taxes are covered in the scope of legislation of Provinces
 Agriculture income tax
 Sales tax on services
 Taxes on transfer of immovable property
 Professional tax
 Tax on luxury houses
 Tax on registration of luxury vehicles
7 (i) To protect local industries against foreign competition.
(ii) To promote exports of the country.
(iii) To counter the effects of inflation.
(iv) To document the economy.
(v) To bring the investments in construction related sectors.
(vi) To discourage savings in bank account.
(vii) To promote online businesses
(viii) To increase employment rate in the country
(ix) To remove inequality in distribution of wealth
(x) To promote science and innovation
8  To strengthen anemic enterprises by granting them tax exemptions or
otherconditions or incentives for growth;

 To protect local industries against foreign competition by increasing local

importtaxes;
 As a bargaining tool in trade negotiations with other countries;
 To counter the effects of inflation or depression;
(i) Fiscal adequacy

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The sources of revenue taken as a whole should be sufficient to meet the

expenditures of the government, regardless of business, export taxes, trade
balances and problems of economic adjustments. Revenues should be capable of
expanding or contracting annually in response to variations in public
expenditures.
(ii) Equality or theoretical justice
Taxes levied must be based upon the ability of the citizen to pay.
(iii) Administrative feasibility
In a successful tax system, tax should be clear and plain to taxpayers, capable of
enforcement by the adequate and well-trained public officials, convenient as to the
time and manner of payment and not unduly burdensome to discourage
business activity.

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Chapter 02 | Constitutional Provisions on Taxes

1 (a) Following taxes can be imposed by the Federal Government

(i) Taxes on income other than agricultural income.
(ii) Taxes on corporations.
(iii) Taxes on the sales and purchases of goods imported, exported, produced,
manufactured orconsumed, except sales tax on services.
(iv) Taxes on the capital value of the assets, not including taxes on immovable property.
(v) Taxes on mineral oil, natural gas and minerals for use in generation of nuclear energy.
(vi) Taxes on the production capacity of any plant, machinery, undertaking,
establishment orinstallation in lieu of any one or more of them.
(vii) Terminal taxes on goods or passengers carried by railway, sea or air; taxes
on their fares andfreights.
(b) The duties of the National Finance Commission to make recommendations to the President as
to:
(i) The distribution between the Federation and the Provinces of the net proceeds of the
taxes.
(ii) The making of grants-in-aid by the Federal government to the Provincial Governments.
(iii) The exercise by the Federal Government and the Provincial Governments
of the borrowingpowers conferred by the Constitution;
(iv) Any other matter relating to finance referred to the Commission by the President.
2 Expenditure charged upon federal consolidated fund:
The following expenditure is charged upon the Federal Consolidated Fund: -
(i) the remuneration payable to the President and other expenditure relating to his office, the
remuneration payable to:
• the Judges of the Supreme Court and the Islamabad High Court
• the Chief Election Commissioner;
• the Chairman and the Deputy Chairman;
• the Speaker and the Deputy Speaker of the National Assembly;
• the Auditor-General;
(ii) The administrative expenses, including the remuneration payable to officers and servants, of the
Supreme Court, the Islamabad High Court, the department of the Auditor-General, the Office of the
Chief Election Commissioner and of the Election Commission and the Secretariat of the Senate and
the Secretariat of National Assembly;
(iii) All debt charges for which the Federal Government is liable, including interest, sinking fund
charges, the repayment or amortization of capital, and other expenditure in connection with the
raising of loans, and the service and redemption of debt on the security of the Federal Consolidated
Fund;
(iv) Any sums required to satisfy any judgment, decree or award against Pakistan by any court or
tribunal; and
(v) Any other sums declared by the Constitution or by Act of Majlis-e-Shoora (Parliament) to be so
charged.
3 National Finance Commission:

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Within six months of the commencing day and thereafter at intervals not exceeding five years, the
President shall constitute a National Finance Commission consisting of the Minister of Finance of the
Federal Government, the Ministers of Finance of the Provincial Governments, and such other persons
as may be appointed by the President after consultation with the Governors of the Provinces.
4 Taxes which can be imposed by the Federation:
Following are the types of taxes which can be imposed by the Federation as provided in the Federal
legislative list under the Constitution of Pakistan:
• Duties of customs, including export duties.
• Duties of excise, including salt, but not including alcoholic liquors, opium or other narcotics;
• Taxes on income other than agricultural income;
• Taxes on corporations.
• Taxes on the sales and purchases of goods imported, exported, produced, manufactured or
consumed, except sales tax on services.
• Taxes on the capital value of the assets, not including taxes on immovable property.
• Taxes on mineral oil, natural gas and minerals for use in generation of nuclear energy.
• Taxes and duties on the production capacity of any plant, machinery, undertaking, establishment or
installation in lieu of any one or more of them.
• Terminal taxes on goods or passengers carried by railway, sea or air; taxes on their fares and
freights.
5 (a) The duty of the National Finance Commission is to make recommendations to the President as to:
• the distribution between the Federation and the Provinces of the net proceeds of the taxes;
• the making of grants-in-aid by the Federal Government to the Provincial Governments;
• the exercise by the Federal Government and the Provincial Governments of the borrowing powers
conferred by the Constitution; and
• any other matter relating to finance referred to the Commission by the President.
(b) Following taxes may be raised under the authority of the Parliament:
(i) taxes on income, including corporation tax, but not including taxes on income consisting of
remuneration paid out of the Federal Consolidated Fund;
(ii) taxes on the sales and purchases of goods imported, exported, produced, manufactured or
consumed;
(iii) export duties on cotton, and such other export duties as may be specified by the President;
(iv) such excise duties as may be specified by the President; and
(v) such other taxes as may be specified by the President.
Powers of the Provinces to legislate on taxes
Following taxes are covered in the scope of legislation of Provinces:
• Agriculture income tax
• Sales tax on services
• Taxes on transfer of immoveable property
• Professional tax
• Tax on luxury houses
• Tax on registration of luxury vehicles
• Property tax

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6 (b) Following taxes can be imposed by the Federal Government

 Taxes on income other than agricultural income.
 Taxes on corporations.
 Taxes on the sales and purchases of goods imported, exported, produced,
manufactured orconsumed, except sales tax on services.
 Taxes on the capital value of the assets, not including taxes on immovable
property.
 Taxes on mineral oil, natural gas and minerals for use in generation of nuclear
energy.
 Taxes on the production capacity of any plant, machinery, undertaking,
establishment orinstallation in lieu of any one or more of them.
 Terminal taxes on goods or passengers carried by railway, sea or air; taxes on
their fares andfreights.
7 (a) The duties of the National Finance Commission to make recommendations to the President with
regard to finance related matters include:
(i) the distribution between the Federation and the Provinces of the net proceeds of the taxes.
(ii) the making of grants-in-aid by the Federal government to the Provincial Governments.
(iii) the exercise by the Federal Government and the Provincial Governments of the borrowing powers
conferred by the Constitution;
(iv) any other matter relating to finance, referred to the Commission by the President.
(b) Following taxes may be raised under the authority of the Parliament:
(i) taxes on income, including corporation tax, but not including taxes on income consisting of
remuneration paid out of the Federal Consolidated Fund;
(ii) taxes on the sales and purchases of goods imported, exported, produced, manufactured or
consumed;
(iii) export duties on cotton, and such other export duties as may be specified by the President;
(iv) such excise duties as may be specified by the President; and
(v) such other taxes as may be specified by the President.
(i) Taxes which can be imposed by the Federation:
Following are the types of taxes which can be imposed by the Federation as provided in the Federal
legislative list under the Constitution of Pakistan:
Following are the types of taxes which can be imposed by the Federation as provided in the Federal
legislative list under the Constitution of Pakistan:
• Duties of customs, including export duties.
• Duties of excise, including salt, but not including alcoholic liquors, opium or other narcotics;
• Taxes on income other than agricultural income;
• Taxes on corporations.
(ii) Taxes which can be imposed by the Provinces:
Following taxes are covered in the scope of legislation of Provinces:
• Agriculture income tax
• Sales tax on services
• Taxes on transfer of immoveable property

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8 Powers of the Provinces to legislate on taxes

Following taxes are covered in the scope of legislation of Provinces
 Agriculture income tax
 Sales tax on services
 Taxes on transfer of immovable property
 Professional tax
 Tax on luxury houses
 Tax on registration of luxury vehicles

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Chapter 03 | Ethics

1 A concise code which can enlist ethical responsibilities of Tax Administrators can be as under:
(i) Obey all laws relating to taxation and grant no exemptions, credit or advantage to any taxpayer that is
not provided by the law;
(ii) Be dedicated to the highest ideal of honesty and integrity in all matters in order to maintain the respect
and confidence of the government and taxpayers;
(iii) Strive to be impartial, fair, neutral and consistent in administering the law without regard to race,
social or economic circumstance;
(iv) Provide prompt, efficient and quality service to all stakeholders in an effort to exceed their
expectation;
(v) Refrain from actively participating in partisan political activities;
(vi) Accurately record proceedings and maintain taxpayer information in the strictest confidence and
highest level of security;
(vii) Refrain from soliciting gifts for actions and non-actions;
(viii) Make reasonable effort to collect the proper amount of tax revenue due at the lowest possible cost to
the state, and in a manner that warrants the highest degree of confidence in our integrity, efficiency,
effectiveness and fairness;
(ix) Respond to valid taxpayer refund claims with the same diligence as employed in collection of taxes;
(x) Educate taxpayers on their rights and responsibilities to ensure the highest possible levels of voluntary
compliance to the laws.
2 Canons of Taxation are the basic principles set to build a 'Good Tax System'. Main canons of taxation are as
follows:
(i) Canon of Equity:
Taxation policy should aim to provide economic and social justice to the people. Accordingly, every person
should pay to the government depending upon his ability to pay.
(ii) Canon of Certainty:
It states that the tax which an individual has to pay should be certain, not arbitrary. The tax payer should
know in advance how much tax, at what time and in what form has to be paid to the government.
(iii) Canon of Convenience:
The mode and timing of tax payment should be as far as possible, convenient to the tax payers.
(iv) Canon of Economy:
This principle states that there should be economy in tax administration.
3 Following are the six ethical issues faced by tax administration authorities under the four pillars of tax
administration:
• Acceptance of gifts
• Conflict of Interest
• Selective application of the law/ or inconsistency in applying the law
• Political influence

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• Confidentiality/secrecy
• Discretion
• Corruption
• Lack of Autonomy
4 Responsibilities of the tax implementing authorities:
A concise code which can enlist responsibilities of Tax Administrators can be as
under:
 Obey all laws relating to taxation and grant no exemptions, credit or
advantage to any taxpayerthat is not provided by the law;
 Be dedicated to the highest ideals of honesty and integrity in all matters
in order to maintainthe respect and confidence of the government and
taxpayers;
 Strive to be impartial, fair, neutral and consistent in administering the
law without regard torace, social status or economic circumstances;
 Provide prompt, efficient and quality service to all stakeholders in an
effort to exceed theirexpectations;
 Refrain from actively participating in partisan political activities;
 Accurately record proceedings and maintain taxpayer information in the
strictest confidenceand highest level of security;
 Refrain from soliciting gifts for actions and non-actions;
 Make reasonable effort to collect the proper amount of tax revenue due at
the lowest possiblecost to the state, and in a manner that warrants the
highest degree of confidence in our integrity, efficiency, effectiveness and
fairness;
 Respond to valid taxpayer refund claims with the same diligence as
employed in collection oftaxes;
 Educate taxpayers on their rights and responsibilities to ensure the
highest possible levels ofvoluntary compliance to the laws.
5 Pillars of tax administration
Pillars of tax administration which safeguard the interest of taxpayers and avoid
abuse of powers by thetax administration are as follows:

(i) Fairness
Strive to be impartial, fair, neutral and consistent in administering the law without
regard to race, socialor economic circumstances

(ii) Transparency
All proceedings must be transparent and must be seen as transparent.

(iii) Equity
Treating all tax payers fairly. Refraining from unduly pressurising a tax payers or a
body of tax payersmerely to achieve tax targets.

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(iv) Accountability
There must be a strong system of accountability for wrong doers which
should curb corruption,nepotism and maladministration
Ethical issues facing tax administration in the discharge of their duties are:
 Acceptance of gifts
 Conflict of interest
 Selective application of the law/ or inconsistency in applying the law
 Political influence
 Confidentiality/secrecy
 Discretion
 Corruption
 Lack of autonomy
6 Responsibilities of the tax implementing authorities:
A concise code which can enlist responsibilities of Tax Administrators can be as under:
(i) Obey all laws relating to taxation and grant no exemptions, credit or advantage to any taxpayer that is
not provided by the law;
(ii) Be dedicated to the highest ideals of honesty and integrity in all matters in order to maintain the
respect and confidence of the government and taxpayers;
(iii) Strive to be impartial, fair, neutral and consistent in administering the law without regard to race,
social status or economic circumstances;
(iv) Provide prompt, efficient and quality service to all stakeholders in an effort to exceed their
expectations;
(v) Refrain from actively participating in partisan political activities;
(vi) Accurately record proceedings and maintain taxpayer information in the strictest confidence and
highest level of security;
(vii) Refrain from soliciting gifts for actions and non-actions;
(b) Ethical issues facing tax administration in the discharge of their duties are:
(i) Acceptance of gifts
(ii) Conflict of interest
(iii) Selective application of the law
(iv) Political influence
(v) Confidentiality
(vi) Discretion
7 (a) Federal Board of Revenue has the following powers under the law to monitor, assess, levy and
collect tax:
 Assess Taxes
 Collect Revenue
 Resize property
 Attach bank account

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 A misuse of power by FBR may result in the following against the tax payer:
 Loss of property and income
 Imprisonment
(a) Pillars of tax administration
Pillars of tax administration which safeguard the interest of taxpayers and avoid abuse of
powers by thetax administration are as follows:
(i) Fairness
Strive to be impartial, fair, neutral and consistent in administering the law without
regard to race, socialor economic circumstances.
(ii) Transparency
All proceedings must be transparent and must be seen as transparent.
(b) Ethical issues facing tax administration in the discharge of their duties are:
(i) Acceptance of gifts
(ii) Conflict of interest
(iii) Selective application of the law/ or inconsistency in applying the law
(iv) Political influence
(v) Confidentiality/secrecy
(vi) Discretion
8 (i) Integrity
(ii) Objectivity
(iii) Professional competence and due care
(iv) Confidentiality
(v) Professional behaviour
Integrity:
Tax practitioners should be straightforward and honest in all professional and business relationships.
Integrity implies not just honesty but also fair dealing and truthfulness

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Chapter 04 | Basic Concepts of Taxation

1 (a) Special tax year:

Where a person’s income year is different from the normal tax year, or where, by an order,
a person has been allowed by the Commissioner Inland Revenue to use a twelve months’
period different from
normal tax year, such income year or such period shall be that person’s special tax year and
shall be denoted by the calendar year relevant to normal tax year in which the closing date
of the special tax year falls.
The Board has authority to prescribe any special tax year in respect of any particular class of
taxpayers.
(b) Transitional tax year:
Where the tax year of a person changes as a result of an order by the Commissioner of
inland revenue either from the normal tax year to special tax year or vice versa, the period
between the end of the last tax year prior to change and the date on which the changed tax
year commences shall be treated as a
‘transitional tax year’.
(c) Application of tax credits while computing the tax liability of the taxpayer:
If a taxpayer is allowed more than one tax credit for a year, the credits shall be applied in
the following order:
(i) Any foreign tax credit; then
(ii) Any tax credit allowed under Part X of Chapter III; such as
• Charitable donations
• Investment in shares and insurance
• Contribution to an approved pension fund
• Tax credit for employment generation by manufacturer u/s 64B
(iii) Second schedule credits e.g. reduction in tax liability due to full time teacher
allowance etc.
(iv) Any tax credit allowed for quarterly advance tax paid u/s 147 and for tax collected /
deducted at source u/s 168
(d) General provisions/ rules apply to income subject to final tax:
Following rules apply to income subject to final tax:
• Tax imposed is a final tax
• Such income is not chargeable to tax under any head of income in computing the
taxable income of the person
• No deduction is allowed for any expenditure incurred in deriving such income
• The amount of such income is not reduced by:
o Any deductible allowance
o The set off of any loss

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2 (a) For the purpose of minimum tax liability, turnover is defined as:
• The gross sales/gross receipts, exclusive of sales tax and federal excise duty or any
trade discounts shown on invoices or bills, derived from the sale of goods and also excluding
any income taken as deemed.
• The gross fees for the rendering of services, including commissions.
• The gross receipts from the execution of contracts.
• The company’s share of the above stated amounts of an association of persons of
which the company is a member.
In case of (i), (ii) and (iii) above, it does not include any amount covered by final discharge of
tax liability for which tax is separately paid or payable.
(b) Following persons are required to pay minimum tax:
• a resident company
• an individual having turnover of Rs. 10 million or above in the tax year 2017 or in
any subsequent tax year
• an association of persons having turnover of Rs. 10 million or above in the tax year
2017 or in any subsequent tax year
(c) Where minimum tax exceeds the actual tax payable, the excess amount of tax paid
shall be carried forward for adjustment against normal tax liability of the subsequent tax
year.
However, the amount shall be carried forward and adjusted against tax liability for a
maximum of five tax years immediately succeeding the tax year for which the amount was
paid.
3 (i) The number of days Asif spent in Pakistan during tax year 2017 is 144 as shown below
Month Days
July 2016 31
August 2016 31
Sept 2016 21
May 2017 31
June 2017 30
Total 144
Asif is a non- resident person as his total stay in tax year 2017 is less than 183 days.
(ii) An AOP is treated as a resident if the management and control of its affairs is situated in
Pakistan
at any time during the year. Hence Sami Associates would be considered a resident
irrespective of the fact that its entire management and control of affairs was subsequently
shifted from Karachi to Dubai.
4 Mr. Bruce Lee is not a resident for the tax year 2017 as he was present for less than 183
days in Pakistan i-e 178 days as follows:
Months Days
December 2016 (15-12-16 is also included) 17

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January 2017 31
February 2017 28
March 2017 31
April 2017 30
May 2017 31
June 2017 30
198
Less: Number of days visited to Dubai – March (10)
Less: Number of days visited to South Korea – April (10)
178
For not considering the days spent on personal trip within Pakistan.
5 Income tax payable under normal tax regime
Taxable income A 1,170,000
Income tax (Rs. 32,000 + 15% of 420,000) 95,000
Income Tax payable under minimum tax regime
Gross sales (14,000,000–1,000,000–500,000) 12,500,000
Turnover tax u/s 113 B 156,250
@
1.25% on Rs.
12,500,000
Tax liability of HC (higher of A and B) 156,250
6 Normal tax year
Normal tax year is a period of twelve months ending on the 30th day of June and is denoted
by the calendar year in which the said date falls.
Special tax year
Where a person’s income year is different from the normal tax year, or where, by an order,
a person has been allowed by the Commissioner to use a twelve months’ period different
from normal tax year, such income year or such period shall be that person’s special tax
year and shall be denoted by the calendar year relevant to the normal tax year in which the
closing date of the special tax year falls.
Transitional tax year
Where the tax year of a person changes as a result of an order by the Commissioner of
Income tax either from the normal tax year to special tax year or vice versa, the period
between the end of the last tax year prior to change and the date on which the changed tax
year commences shall be treated as transitional tax year. (Also called separate tax year)
(b)
Change of tax year from normal to special
• A person shall apply in writing to the Commissioner for change in tax year from
normal to special.
• The Commissioner should grant permission only if he is satisfied that the company
has a compelling need to use special tax year.
• While giving the permission, the Commissioner may impose such conditions as he
may deem fit.

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(c)
Tax year is 20X9.
Due date for filing of return is 30 September 20X9.
7 (i) Mohsin is not a resident individual as he spent less than 183 days in Pakistan during
the tax year 20X8.
(ii) Under the ITO-2001 the foreign-source income of a short term resident individual
shall be exempt from tax if he/she is:
A resident individual solely by the reason of employment.
Present in Pakistan for a period not exceding three years.
However, the above rule is not applicable to any foreign-source income brought into or
received in Pakistan.
Mohsin is a short term resident individual as he is in Pakistan for employment and his stay is
less than three years. Based on the above rule:
taxable as it has been received in Pakistan. However, he can claim the foreign tax credit of
the amount paid as income tax in USA.
40% his foreign source income which he brought into Pakistan is taxable whereas 60% of his
foreign source income which he kept outside Pakistan is exempt from tax.
8 (i)
• Haider should give to the Commissioner a notice in writing regarding the discontinuance of
business within fifteen days of the discontinuance i-e by 15 February 20X8.
• He is also required to furnish the return of income under the provisions of the ITO 2001 or
on being required by the Commissioner by notice in writing.
• The return should cover the period commencing from 1 July 20X7 to 31 January 20X8.
(ii)
Under the ITO-2001, if there is any income that has been derived by a person in a tax year
from a business that has ceased before the commencement of that year and if that income
would have been taxable had there been no cessation, then the provision of the tax statute
would apply as if there was no cessation.
In the light of above provision, the receipt of Rs. 1,300,000 shall be included in his income
from business for the tax year 20X9, provided that the write off has been claimed/allowed in
the previous year(s).
9 Following rules are applicable on the income subject to FTR:
i. Such income is not chargeable to tax under any head of income in computing the taxable
income;
ii.No deduction is allowed for any expenditure incurred in deriving the income
iii. The amount of the income is not reduced by
• Any deductible allowance; or
• The set off of any loss
iv.The tax deducted is not reduced by any tax credit

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v.There is no refund of the non-adjustable tax collected or deducted at source unless such
tax is in excess of the amount of final tax for which the taxpayer is chargeable and
vi. An assessment is treated to have been made and the person is not required to furnish a
return of income in respect such income.
10 In view of the permission granted by Commissioner-IR to Jean Francois to use special tax
year, the number of days he spent in Pakistan beyond 31 December 20X8 would fall under
tax year 20Y0. As a result, John is a non-resident person because his total stay in tax year
20X9 is 175 days (i.e. from 10 July20X8 to 31 December 20X8) which is less than 183 days.

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Chapter 05 | Income from Salary

1.

Mr. Munir
Computation of taxable income
Tax Year: 2018
Notes Amount
Option 1: By applying applicable tax rate to total taxable income

Salary:
Basic salary (350,000 x 6) 2,100,000
Leave encashment 150,000
Golden handshake payment 4,000,000
6,250,000
Computation of tax liability:
Upto Rs. 5,000,000 670,000
Balance (Rs. 6,250,000 -5,000,000) x 22.5% 281,250
951,250

Option 2: Tax on salary at applicable rate and final settlement amount at average rate of
tax
Salary:
Basic salary (350,000 x 6) 2,100,000
Leave encashment 150,000
2,250,000
Computation of tax liability:
Upto Rs. 1,800,000 90,000
Balance (Rs. 2,250,000-1,800,000) x 15% 67,500
157,500
Golden handshake (Rs. 4,000,000 x 17.62%-W-1 704,762
862,262
Tax saving under option 2 88,988
Munir should select option 2 as it would result in tax saving of Rs.88,988 (951,250-
862,262).
Workings:
W-1: Average rate of preceding three years

Taxable income 2,700,000 3,100,000 3,650,000 9,450,000

Tax liability 472,500 542,500 650,000 1,665,000

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17.62%

2.
Taxable Income
Share of DL - Employees share scheme Rupees
Fair market value of shares on 31 July 2016 (30,000× 50) 1,500,000
Purchase price (30000×30) 900,000
income from salary 600,000
Share of DL - Employees share scheme Rupees
Sale proceeds of shares on 31 May 2017 (10,000×65) 650,000
Purchase price (10,000×50) 500,000
Capital Gain 150,000

3.

Mr. Hasrat
Computation of taxable income
Tax Year: 2018
Notes Amount
Salary
Basic salary 6,000,000
Contribution to provident fund:
By Hasrat- No treatment -
By Shakir Limited: Actual contribution 600,000
Less : Exempt upto lower of Rs. 150,000 or 1/10th of Rs. 150,000 450,000
6,000,000)
Interest credit: Actual amount credited 3,391,000
Less exempt upto higher of:
1/3rd of Basic salary 2,000,000
16% of interest (Rs.3,391,000/0.2 x 16%) 2,712,800 678,200
Taxable income 7,128,200

4. The benefit received by Sajid on his retirement would be treated as follows:

(i) Leave encashment comes under the definition of salary and therefore it would be fully taxable.
(ii) Since the amount was received from unapproved PF, the employer’s contribution and interest on
accumulated balance would be taxable in the year of receipt.
(iii) In the case of unapproved gratuity, exemption is available up to Rs. 75,000 or 50% of the amount
receivable whichever is lower. Therefore, the amount to be included in Sajid’s taxable income would be Rs.
2,425,000 (2,500,000‒75,000).
(iv) Since the market value of the vehicle was more than cost of acquisition the difference i.e.
1,500,000 would be included in his taxable income.

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5. Where a loan is given to an employee then the amount will be included in salary income of the employee in the
following manner:
If no interest is payable by the employee - the amount of interest computed at the benchmark rate (i.e. 10%).
If interest is payable at less than benchmark rate - the interest amount computed at the benchmark rate less
the actual amount of interest paid by the employee.
The interest for loan amount would be chargeable to tax only for amount exceeding Rs. 1,000,000.
If interest free loan is extended by the employer due to waiver of interest by such employee on his accounts
maintained with the employer (e.g. Provident Fund), no amount of interest would be charged.
6.

(a) Following options are available to Jamal (Salaried individual): Option 1: By applying

applicable tax rate to total taxable income

Rupees

Salary (500,000 6) 3,000,000

Leave encashment 600,000
Arrear for 20W9 & 20X0 3,000,000
Total taxable income 6,600,000

Tax computations:
On Rs. 5,000,000 670,000
On balance [(6,600,000 – 5,000,000) 22.5%] 360,000
Tax liability under option 1 1,030,000

Option 2
Rupees
Salary (500,000 6) 3,000,000
Leave encashment 600,000
3,600,000
Tax computation – Salary
On (Rs. 3,500,000) 370,000
On balance [(3,600,000 – 3,500,000) 20%] 20,000
390,000
Tax on amount received in arrear for the tax year 20W9
Received in 20W9 3,200,000
Received in 20X2 1,300,000
4,500,000

Tax on Rs. 3,500,000 370,000

On balance Rs. 1,000,000 @ 20% 200,000
570,000
Already paid (404,500)
165,500

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Tax on amount received in arrear for the tax year 20X0

Received in 20X0 3,800,000
Received in 20X2 1,700,000
5,500,000

Tax on Rs. 5,000,000 670,000

On balance Rs. 500,000 @ 22.5% 112,500
782,500
Already paid (300,000)
482,500

Tax payable for arrears (165,500+482,500) 648,000

Total tax payable (390,000+648,000) 1,038,000

Tax saving (1,030,000-1,038,000) 8,000

Note: Since Provident fund is recognized, it is fully exempt. Conclusion:

Jamal should select option 1 as it would result in tax saving of Rs. 8,000 (1,038,000 – 1,030,000).

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Chapter 06 | Income from Property

1. (a)

(i) ‘Rent’ means any amount received or receivable by the owner of land or a building as consideration for the use or
occupation of, or the right to use or occupy, the land or building, and includes any forfeited deposit paid under a
contract for the sale of land or a building.

Where the owner of the building receives from a tenant an amount which is not adjustable against the rent payable by
the tenant, the amount shall be treated as rent.

(ii) The income given in the question would be chargeable under the head

o Income from other sources

o Income from other sources

2.
Farrukh
Computation of taxable incomeFor
the tax year 2016

Income from property:

Forfeiture of deposit 500,000

Rent of plot of land [higher of (2,160,000 ÷ 12 × 10) or (150,000 × 1,800,000
10)]
Gross rent 2,300,000
Amount not adjustable against the rent -
(Nothing is to be included in the chargeable income as this provision of law is attracted
where the
owner of building and not land receives such amount.)

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Less:
Repairs 1/5th of rent (leveling of ground) -
(Admissible only against the rent of the building)
Interest on loan [6,500,000 × 12%] × [10 ÷ 12] (650,000)
(interest on only that portion of the loan which is utilized for the acquisition of land is admissible)
Ground rent (50,000)
Insurance premium [not available on land] -
Rent collection charges (2,300,000 × 6%) (138,000)
(Lower of actual expenditure or 6% of rent is admissible)
Fee paid to professional valuer- inadmissible -
(838,000)
1,462,000

3.
Income from property Rupees
Rental income (40,000 × 12) 480,000
Rental income from joint property (4,800,000 (W-1) × 60%) 2,880,00
Less: Repair charges -
Add: Un-adjustable security deposits (Rs. 212,500 (W-2) × 1/10) 21,250

3,381,25
Income from other sources
Income from utilites, cleaning and security 468,000
%]
Total income 3,849,250
Less: Income from property – separate block of income (3,381,750)
Taxable income 468,000

W-1: Determination of Income from joint property (bungalow) Rupees

Total rental income 6,000,000
Less: Amount relating to utilities, cleaning and security (1,200,000)
Income from property 4,800,000

W-2: Computation of unadjustable security deposit Rupees

Received from new tenant 300,000
Less: Amount charged to tax in July 2013 to June 2018
(175,000 × 5/10) (87,500)

212,500

4. (a) ‘Rent’ means any amount received or receivable by the owner of land or a building as consideration for the use
or occupation of, or the right to use or occupy, the land or building, and includes any forfeited deposit paid under a

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contract for the sale of land or a building. Where the owner of a building receives from a tenant an amount which is
not adjustable against the rent payable by the tenant, the amount shall be treated as rent.

(b)
Mr. Amjad
Computation of taxable income
For tax year 20X9
Rupees
Income from property
Residential property at DHA – Karachi (W-1) 3,600,000

Amount forfeited from Zeeshan 5,000,000

Income from other sources

Factory building at Sukkur – Basit (W-1) 1,625,000

Income from capital gain

(i) Sale of plot in Quetta – Jamshed -

Since the plot was bought in 20X4, therefore no tax is payable under the law.
Total Taxable income 10,225,000

Income from property Income other sources

DHA - Karachi Sukkur - Factory
Rental Income (300,000×12), 3,600,000 3,000,000
(500,000×6)
Less: Admissible expenses
Repair to building (allowed upto - 270,000
1/5 of the rental amount)
Repair to machinery - 50,000
Ground rent - 50,000
Insurance – Building - 150,000
Depreciation: Building – Normal - 450,000
[Rs. 9m @ 10%×6/12]
Plant – Normal [Rs. 3m @ - 225,000
15%×6/12]
Interest on loan from Shamshad
Rs. 2 million @ 18% for 6 months - 180,000
Net income 3,600,000 1,625,000

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Chapter 07 ,08 | Income from Business

1. (a) For the purpose of minimum tax liability, turnover is defined as:
(i) The gross sales/gross receipts, exclusive of sales tax and federal excise duty or any trade discounts shown
on invoices or bills, derived from the sale of goods and also excluding any income taken as deemed.
(ii) The gross fees for the rendering of services, including commissions.
(iii). The gross receipts from the execution of contracts.
(iv) The company’s share of the above stated amounts of an association of persons of which the company is a
member.
In case of
(i), (ii) and (iii) above, it does not include any amount covered by final discharge of tax liability for which tax is
separately paid or payable.
(b)
Following persons are required to pay minimum tax:
(i) a resident company
(ii) Permanent establishment of non-resident company
(iii) an individual having turnover of Rs. 10 million or above in the tax year 2017 or in any subsequent tax year
(iv) an association of persons having turnover of Rs. 10 million or above in the tax year 2017 or in any subsequent tax
year
(c)
Where minimum tax exceeds the actual tax payable, the excess amount of tax paid shall be carried forward for
adjustment against normal tax liability of the subsequent tax year. However, the amount shall be carried forward and
adjusted against tax liability for a maximum of five tax years immediately succeeding the tax year for which the
amount was paid.

2. (i) Machinery acquired in exchange:

The cost of new machine purchased by Mr. Aamir in exchange for an old machine shall be the sum of the
following amounts:
• the total cash given for the new machine;
• the fair market value of the old machine as determined at the time the asset is acquired;
• any incidental expenditure incurred in acquiring new machine and disposing of the old exchanged
machine. Such as freight given in this case; and
• any expenditure incurred to alter or improve the new machine. For instance, purchase of cooling
equipment given in this case.
(ii) Machinery acquired through foreign currency loan and subsidy:
In determining the cost of production machinery, the actual amount spent by Mr. Saulat shall be reduced by
the amount of subsidy received by him on acquisition of such machinery, unless such amount of subsidy is
chargeable to tax. Since Mr. Saulat has purchased the machinery with a loan repayable in euro and before full
and final repayment of the loan, if there is an increase or decrease
in the loan liability, in terms of rupee, due to exchange rate fluctuation, the amount by which the liability is
increased or reduced shall be added to or reduced from the cost of the asset, as the case may be. However,

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difference if any, on account of foreign currency fluctuation, shall be taken into account in the year of
occurrence for the purposes of depreciation.
(iii) Personal computer for business purpose:
• The cost of personal computer shall be its fair market value on 1 July 2015, the date on which Mr.
Talha started using it for business purposes plus
• cost incurred by him on its up-gradation.
(iv) Cost of constructed asset:
The cost of the furnace shall be the sum of the following:
• the total cost incurred by Mr. Rahi for the construction of the furnace; and
• any incidental expenditure incurred by Mr. Rahi for acquiring of the asset;
• any expenditure incurred to alter or improve the asset.
3. Entertainment expenditure:
Akram would be allowed a deduction for entertainment expenditure if the following conditions are satisfied:
The expenditure should be incurred in deriving income from business chargeable to tax and should be limited
to expenditure incurred which satisfies the following conditions:
• expenditure incurred outside Pakistan on entertainment in connection with business transactions
or is allocated as head office expenditure
• expenditure incurred in Pakistan on entertainment of foreign customers and suppliers
• expenditure incurred on entertainment of customers and clients at the person’s business premises
• expenditure incurred on entertainment at a meeting of shareholders, agents, directors or
employees; or
• expenditure incurred on entertainment at the opening of branches.
 A deduction shall only be allowed for expenditure incurred on the entertainment of persons related directly
to Akram’s business.

4. For the purpose of minimum tax liability, turnover is defined as:

(i) The gross sales/gross receipts, exclusive of sales tax and federal excise duty or any trade discounts shown
on invoices or bills, derived from the sale of goods and also excluding any income taken as deemed.
(ii) The gross fees for the rendering of services, including commissions. (iii). The gross receipts from the
execution of contracts.
(iv) The company’s share of the above stated amounts of an association of persons of which the company is a
member.
In case of (i), (ii) and (iii) above, it does not include any amount covered by final discharge of tax liability for which tax
is separately paid or payable.

(b)
Following persons are required to pay minimum tax:
(i) a resident company
(ii) Permanent establishment of non-resident company
(iii) an individual having turnover of Rs. 10 million or above in the tax year 2017 or in any subsequent tax year
(iv) an association of persons having turnover of Rs. 10 million or above in the tax year 2017 or in any
subsequent tax year

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(c)
Where minimum tax exceeds the actual tax payable, the excess amount of tax paid shall be carried forward for
adjustment against normal tax liability of the subsequent tax year. However, the amount shall be carried forward and
adjusted against tax liability for a maximum of five tax years immediately succeeding the tax year for which the
amount was paid.

5.

(a)
Income from Business:
Consideration 50,000,000
Less:
Cost (consideration treated cost) 50,000,000
Depreciation claimed till 2016 6,000,000
Written down value (WDV) 44,000,000
Tax gain 6,000,000
(b)
Income from Business:
Consideration- Cost treated as consideration 20,000,000
Less:
Cost 20,000,000
Written down value (WDV) 7,000,000
Tax gain 1300,000

6.

Consideration of land-W-1 3,750,000

Cost 2,000,000
Gain taxable as separate block 1,750,000
75% of gain taxable as holding is greater than 1 year 1,312,500
Income from Business
Consideration-W-1 6,250,000
Cost 6,250,000
Depreciation 600,000 5,650,000
Gain taxable under normal tax regime 600,000

Workings:
W-1:
Sale value of land and building 10,000,000

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Fair market value of land 3,000,000

Fair market value of building 5,000,000
Consideration of land (3/8 x 10) 3,750,000
Consideration of building (5/8 X 10) 6,250,000
W-2:
Cost of land 2,000,000
Cost of building 6,000,000
WDV of building 5,400,000

7.

(a) The fair market value of the assets shall be treated as cost of the assets when received:

 under a gift from a relative, bequest or will;

 by succession, inheritance or devolution;
 on a distribution of assets on dissolution of an association of person; or
 on a distribution of assets on liquidation of a company

The cost of a personal assets treated as acquired by the business shall be the fair marketvalue
of the asset determined at the date it is applied to business use.

(b) (i) Loss on disposal of a vehicle used by manager Rupees

Consideration received on disposal of passenger transport vehicle not
plying for hire A×B/C Where (2.8×2.5/3.1) 2,258,065
(A is the amount received on disposal of the vehicle; B is the amount
allowed as per law i.e. Rs. 2.5 million; and C is the actual cost of
acquiring the vehicle.)
Written down value of vehicle (2.5×85%×85%×85%) (1,535,313)
Income from business 722,752

(ii) Disposal of machine

The capital gain is determined as follows: Rupees
Insurance claim received from the shipping company 1,840,000
Scrap value of the machine 350,000
2,190,000
Less: Purchase price of the machine (1,900,000)
Less: Documentation charges incurred (38,000)
Income from capital gain 252,000

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8.

(i) Rs.”000”

Consideration received (equal to the cost of the asset) 1,800

WDV at the time of disposal 600
Gain on disposal 1,200
(ii)
The forward contract entered into by SL for the purchase of raw materials is in the nature of a hedging
contract which was entered into to guard against loss from future price fluctuations. Such contracts have
specifically been excluded from the definition of speculative business. Therefore, Rs. 500,000 paid to settle
the forward contract is an expenditure incurred in the normal course of business and is a deductible
expenditure.

9. a) Entertainment expenditure:
The prescribed limits / conditions for the deduction of entertainment expenditure are as under:
 The expenditure should be incurred in deriving income from business chargeable to tax and should
be limited to expenditure incurred which satisfies the following conditions:
 expenditure incurred outside Pakistan on entertainment in connection with business transactions or
is allocated as head office expenditure;
 expenditure incurred in Pakistan on entertainment of foreign customers and suppliers;
 expenditure incurred on entertainment of customers and clients at the person’s business premises;
 expenditure incurred on entertainment at a meeting of shareholders, agents, directors or employees;
or
 expenditure incurred on entertainment at the opening of branches.
 A deduction shall only be allowed for expenditure incurred on the entertainment of persons related
directly to person’s business.
(b) Foreign Income and Assets Statement:
Every resident taxpayer being an individual having foreign income of not less than ten thousand United States
dollars or having foreign assets with a value of not less than one hundred thousand United States dollars shall
furnish a statement, hereinafter referred to as the foreign income and assets statement, in the prescribed
form and verified in the prescribed manner giving particulars of:
(i) the person’s total foreign assets and liabilities as on the last day of the tax year;
(ii) any foreign assets transferred by the person to any other person during the tax year and the
consideration for the said transfer; and
(iii) complete particulars of foreign income, the expenditure derived during the tax year and the
expenditure wholly and necessarily for the purposes of deriving the said income.
The Commissioner may by a notice in writing require any person being an individual who, in the opinion of
the Commissioner on the basis of reasons to be recorded in writing, was required to furnish a foreign income

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and assets statement but who has failed to do so to furnish the foreign income and assets statement on the
date specified in the notice.”
(c)
Under the Income Tax Ordinance, 2001 if in the opinion of the Commissioner, an asset is
acquired from any income chargeable to tax but could not be charged to tax, it is considered to be a
concealed asset.
The Commissioner may at any time before issuing any assessment order under section 121 (best assessment
order) or 122 (amended assessment order) issue to the person a provisional assessment order or provisional
amended assessment order as the case may be.
While issuing the assessment order the Commissioner, shall take into account the computation of taxable
income and tax payable for the last completed tax year of the person during which the concealed asset was
accounted for.
The Commissioner shall finalize the provisional order or provisional amended assessment order as soon as
possible.
10. An admissible deduction is specific to a particular head of income and is deducted from income under
that head. If admissible deductions are greater than the income derived under a particular head it will create
a loss which may be set off against income under any other head or may carried forward to a subsequent
year. Some examples of admissible deductions are:
 Depreciation expense
 Rent expense
 Salary expense
A deductible allowance is deducted from the total income and if it is higher than the total income it will be
restricted to the amount of total income. Any deductible allowance in excess of the total income cannot be
carried forward to a subsequent tax year. Examples of deductible allowance are:
 Zakat
 Workers welfare fund
 Workers participation fund

11. (i) A person may apply in writing to the Commissioner for change in tax year from special to normal. The
Commissioner grants permission only if he is satisfied that it has a compelling need to use normal tax year.
While giving the permission, the Commissioner may impose conditions as he may deem fit. An order of the
Commissioner for change of tax year shall take effect from such date, being the first day of the normal tax
year as may be specified in the order.
(ii) A person may apply in writing for a change in the person’s method of accounting to the Commissioner.
The Commissioner may, by notice in writing, approve such an application but only if satisfied that the change
is necessary to clearly reflect the person’s income chargeable to tax under the head “Income from Business”.
If a person’s method of accounting has changed, the person shall make adjustments to items of income,
deduction, or credit, or to any other items affected by the change so that no item is omitted, and no item is
taken into account more than once.

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12. In case any immovable property having fair market value (FBR value or DC rate whichever is higher)
greater than five million rupees is purchased in cash, then it will have following implications:
Such asset shall not be eligible for initial allowance or depreciation.
Such amount shall not be treated as cost for computation of any gain on disposal (sale value will be treated
as capital gain).
Such person shall pay a penalty of 5% of the FBR value or DC rate whichever is higher.
13.

Faster & Co.

Computation of amount of allowable deduction in determining taxable income
Rs. in million
Initial allowance on plant and machinery [160(W-1)×25%] (40.00)
Depreciation on plant and machinery [18(160(W-1)×75%×15%)×50%] (9.00)
Amortization of pre-commencement expenditure (5×20%) (1.00)
Finance charges [(2×3%÷2)×53] (1.59)
(51.59)

W-1: Cost of plant and machinery Rs. in million

Acquisition cost 150
Change in AED rate [2×(55 50)] 10
160

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Chapter 09 | Income from Capital Gain

1. Capital Gain u/s 37 A as Separate block of Income:

Consideration received 350*2500 875,000

Deemed cost at the time of inheritance 300*2500 (750,000)
Taxable Capital Gain 125,000
Capital Gain u/s 37 at Normal Tax rates

Consideration received 350*2500 875,000

Deemed cost at the time of inheritance 300*2500 (750,000)
Taxable Capital Gain 125,000
Holding period is more than 1 year therefor taxable gain is 75% of 125,000 that is Rs. 93,750

2. The amount of Rs. 5 million forfeited by Najam in accordance with the terms of the agreement for the sale of
his house to Zameer is to be treated as rent received.
 Najam should recognize the gain of Rs. 10,000,000 (30,000,000 – 20,000,000) on disposal of the house
to Farid under the head ‘Capital Gain’.
 Since the disposal was made after holding the house for more than three years as it was acquired in
2012, therefore no tax is payable under the law.

3. I. Since Saleha inherited paintings from her father, the fair market value of the painting on the date of its
acquisition/transfer would be treated to be its cost. Hence, cost of the painting would be Rs. 1,550,000. and
there is a loss of Rs. 300,000. But, according to the ITO-2001, no loss can be recognized on disposal of painting.
II. The cost of the Jewellery would be Rs. 1,300,000 i.e. the value thereof at the time of gift. Therefore, the gain
of Rs. 1,000,000 should be recognized. However, as the holding period of Jewellery is more than one year, the
taxable gain will be restricted to 75% i.e. Rs. 750,000
III. The car sold by Saleha was being used by her for business purposes and therefore depreciation was also
being charged on it. However, depreciable assets are specifically excluded from the definition of capital assets.
Therefore, no capital gain or loss would arise on the disposal of car.
IV. No capital gain/loss will arise as any movable property held for personal use by the person is excluded from
the definition of capital assets.
4.

Taxable Income
Sale of painting Rupees
Consideration received 2,000,000
Less: Cost of painting (1,800,000)
Capital gain 200,000
The taxable gain would be 75% of 200,000 = Rs. 150,000 as the painting was disposed of after more than
one year.

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5. Under the ITO-2001, any movable property held for personal use are excluded from the definition of capital
assets. Therefore, income from sale of personal vehicles are not taxable under the head Capital Gains.

6.

Gain/ Loss on disposal of sculpture

Sculpture I Sculpture II
Fair market value of sculpture when they lost 360,000 540,000
Consideration allocation ratio (360/900, 540/900)
based on fair market value 40% 60%
Consideration on the basis of allocation ratio 376,000 564,000
Less: Cost of acquisition (410,000) (475,000)
(Loss)/Gain on disposal of sculpture *(34,000) 89,000
Less: 25% gain exempt due to holding for more than1
year 22,250
Taxable income - 66,750

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Chapter 10 | Income from Other Source

1.
Taxable income of Dawood Rupees
Income from property (Rs. 3,600,000 (W-1) × 65%) 2,340,000
Income from other sources (Rs. 480,000 (W-2) × 65%) 312,000
Income from other sources 3,000,000
5652000
Less: Separate block of income - Income from property (2340,000)
3132000

Taxable income of Dewan

Income from property (Rs. 3,600,000 (W-1) × 35%) 1,260,000

Income from other sources (Rs. 480,000 (W-2) × 35%) 168,000

1,428,000

Less: Separate block of income - Income from property (1,260,000)

168,000

W-1: Computation of joint taxable income under income from property

Rent received by joint owners for 12 months 4,500,000

Less: Amount received on account of utilities, cleanliness & security
(75,000×12) (900,000)
Rent chargeable to tax 3,600,000
Deduction of expenses against income from property is allowed onlyfor
company therefore no deduction is allowed [15A (1)]

W-2: Computation of income from other sources

Income from other sources
Amount received on account of utilities, cleanliness & security(75,000×12)
900,000
Less: Actual expenses incurred (35,000×12) (420,000)
480,000

2. Any amount or fair market value of any property received as gift, other than gift received from grandparents,
parents, spouse, brother, sister, son or a daughter shall be chargeable to tax under the head ‘Income from
other sources’.
The flat received by Sadiq from his uncle will be chargeable to tax.
3. Farheen

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Computation of total income, taxable income and net tax payable/refundable for tax year 2020

Rupees
Income from property
Rent from Bungalow - Abbas [175,000×9] 1,575,000
Rent from Bungalow - Zafar [175,000×3] 525,000
Non-adjustable security deposit - Zafar (W-1) 150,000
Forfeiture of deposit for sale of building 220,000
Less: Legal charges for preparation of agreement -
Total income from property 2,470,000

Income from other sources

Security guard's salary - [50,000×12] 600,000
Deposit for vacating the office [(2,400,000–2,000,000)/10] 40,000
Rentals from lease of factory with machinery [500,000×7] 3,500,000
Additional payment of delayed refund [S.39(cc)] 30,000
Less: Payment for security services [40,000×12] (480,000)
Total income from other sources 3,690,000
Total income 6,160,000

W-1: Rupees
Non-adjustable security deposit received from Zafar 2,500,000
Less: Amount charged to tax till tax year 2019 [(2,500,000/10)×4] (1,000,000)
1,500,000
Amount chargeable to tax this year [1,500,000/10] 150,000

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Chapter 11 | Losses, Deductions & Tax Credits

1. Rules relating to set off and carried forward of losses of AOP:

The AOP is entitled to set off and carry forward its losses against its income only. However, share of loss from
AOP is neither adjustable against the income of its members nor it is considered for rate purpose.

2. Business Loss
 Where a person sustains a loss for a tax year under the head “income from business”, the said
loss can be fully offset against the person’s income, if any, chargeable to tax under any other
head of income except income from salary and income from property.
 Where such loss cannot be fully offset against the income of any other head for that year, so
much of the loss that has not been offset fully, may be carried forward to the following tax year
and set off against the person’s chargeable income under the head “income from business” for
that year.
 No loss can be carried forward for more than six tax years immediately succeeding the tax year
for which the loss was first computed.
 Where the business loss includes deductions allowed under depreciation and amortization that
have not been set off against income, the amount not set off, may be added to the deductions
allowed under these heads in the subsequent years and so on until completely set off.

Speculation Losses
 If a person sustains a loss in a tax year from any speculation business, he can set off such loss
only against profits of any other speculation business carried on by him during the same tax year.
 In the subsequent years too, the speculation loss can be set-off against income of any
speculation business only. It means that loss from speculation business cannot be adjusted
against income under any other head.
 If a person has a speculation loss carried forward for more than one tax years, the loss of earliest
tax year shall be set-off first.

3.

Income from business: Rs. in million

Sale – Sugar 310
Less: Operating expenses (19)
Market value of agricultural produce used as raw-material (60,000×4,550) (273)
18
Exempt income:
Sale of Sugar cane worth of Rs. 910 million (200,000×4,550) received from -
agricultural land
Taxable income 18

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4.

Trading Speculation Total

Particulars
business business
-------- Rs. in million --------
Gross revenue 400 200 600
Gross profit 20 10 30
Administrative and general expenses
4.53 2.27 6.80
[7.2m–0.4m×400m÷600m]
Net income 15.47 7.73 22.8
brought forward losses 12.80 9.60
Taxable income/(loss) carried forward for the
2.67 *(1.87)
year

*Loss carried forward to next year

Capital loss of Rs. 2 million cannot be carried forward to next year as the period of six years lapsed in tax year20X8.

5. An admissible deduction is specific to a particular head of income and is deducted from income under that
head. If admissible deductions are greater than the income derived under a particular head it will create a loss
which may be set off against income under any other head or may carried forward to a subsequent year. Some
examples of admissible deductions are:
 Depreciation expense
 Rent expense
 Salary expense
A deductible allowance is deducted from the total income and if it is higher than the total income it will
be restricted to the amount of total income. Any deductible allowance in excess of the total income cannot be
carried forward to a subsequent tax year. Examples of deductible allowance are:
 Zakat
 Workers welfare fund
 Workers participation fund

6 (i&ii) Monthly cash allowance and payment of school fees

Any income received by a spouse as support payment under an agreement to live
apart shall be exempt from income tax. Hence, under the provision of law, monthly cash
amount of Rs. 50,000 and school fees of Rs. 10,000 paid by Ahmed would be considered
as support payment.
Both amount will be shown as exempt income under the head 'Income from other
sources' in Mrs. Ahmed's income tax return.
(iii) Rent received from the property

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Since the ownership of the shop was transferred to Mrs. Ahmed, the rental income
from the shop will not be considered as support payment. Rental income of Rs. 880,000
(88,000×10) will be chargeable to tax under the head 'Income from property in Mrs.
Ahmed's income tax return.
7.

Application of tax credits while computing the tax liability of the taxpayer:
If a taxpayer is allowed more than one tax credit for a year, the credits shall be
applied in the following order:
(i) Any foreign tax credit; then
(ii) Any tax credit allowed under Part X of Chapter III; such as
 Charitable donations
 Investment in shares and insurance
 Contribution to an approved pension fund
 Tax credit for employment generation by manufacturer u/s 64B
(iii) Second schedule credits (e.g. reduction in tax liability due to full time
teacher allowance.)
(iv) Any tax credit allowed for quarterly advance tax paid u/s 147 and for tax
collected / deducted at source u/s 168
8

Nature of loss Rs. in million Set off Carried forward

Loss from speculation (4.5) It cannot be set off It can be carried
business against any other head forward against future
of income. speculation gain upto
OR next 6 tax years
It can only be set off following the tax year
against any other gain in which the loss
from speculation occurred.
business.
Loss on sale of shares (3.6) This is a capital loss and The loss of Rs. 1.1m
of private company it can be set off against (3.6–2.5) can becarried
capital gain on sale of forward only against
jewellery of Rs. 2.5m. future capital gain upto
6 tax years next
following the tax year
in which the loss
occurred.
Loss on sale (1.6) This loss shall not be recognized. So no question
ofantique of set off or carried forward of this loss arises.

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Loss on sale of listed (6.0) This is a capital loss andThe loss of Rs. 2m(6–4)
securities it can only be set off can be carried forward
against capital gain on only against future
sale of listed securities capital gain on disposal
of Rs. 4m. of securities under
section 37A upto 3
subsequent tax years.
Loss from agriculture (8.0) Since agriculture income is exempt from tax, this
loss cannot be adjusted against any other income.
Loss from other (19) It can be set off with The loss of Rs. 4m (19–
sources income from normal 15) cannot be carried
(other than forward.
speculation) business
of Rs. 15m but cannot
be set off with income
from property.

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9.
Tax credit for certain persons
Following incomes or taxpayers shall be allowed a tax credit equal to one hundred per centof
the tax payable:
(i) Persons engaged in coal mining projects in Sindh supplying coal exclusively to power
generation projects;
(ii) A start-up for the tax year in which the startup is certified by the Pakistan Software
Export Board and for the following two years;
(iii) Persons deriving income from exports of computer software or IT services or IT
enabled services up to the period ending on 30 June 2025 if 80% of the export
proceeds are brought into Pakistan in foreign exchange through normal banking
channels.
The above tax credit shall be available subject to fulfillment of the following conditions:
(i) Annual return of income has been filed;
(ii) Withholding tax statements for the relevant tax year have been filed, where the
person is a withholding agent; and
(iii) Sales tax returns for the tax periods corresponding to the relevant tax year have been
filed, if the person is required to file sales tax return under any of the Federal or
Provincial sales tax laws.

10.
Any profit received by a non-resident person on a security issued by a resident
person shall be exempt from tax if:
the persons are not associates;
the security was widely issued outside Pakistan for the purposes of raising
a loan outside Pakistan for use in a business carried on by the resident
person in Pakistan;
the profit was paid outside Pakistan; and
the security is approved by the Board for the purposes of this section.

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Chapter 12 | Taxation of individuals and AOP

1.

BAR (AOP)

Computation of income tax liabilityFor the tax year 2016 RUPEES

Accounting profit before taxation 5,488,000

Add: Inadmissible expenses:
Closing stock-in-trade adj. [1,950,000 – 1,820,000] 130,000
Provision for slow moving stock 75,000
Freight charges paid in cash -
Commission paid to Baqir 290,000
Annual performance award – Rahi 310,000
Bank loan of Asad paid by BAR 455,000
Provision for bad debts 735,000
Sales promotion expenses 275,000
Employee training and facilities (FG run institution) -
Loss from Tehran branch 1,800,000
Profit from Dubai branch (1,500,000)
Net loss from foreign source (to be carried forward for adjustment
against foreign source income of the following tax year, if any.) 300,000
2,270,000
7,758,000
Less: Admissible expenses:
Bad debts written off (W-1) (120,000)
Net taxable income 7,638,000

Tax on Rs. 6,000,000 1,319,500

On balance Rs. 1,638,000 tax @ 35% 573,300
Net Liability 1,892,800

Rupees
W-1: Computation of bad debts written off:
Opening balance of provision for bad debt account 1,100,000
Add: provision during the year 735,000
1,835,000
Less: Closing balance of provision for bad debt A/c (1,435,000)
Debts written off during the year 400,000
Less: loan to supplier written off [W-1(a)] (280,000)
Bad debt written off allowed for tax purpose 120,000

2. (i) Associates:
Two persons are associate where the relationship between the two is such that one may
reasonably beexpected to act in accordance with the intentions of the other, or both

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persons may reasonably be expected to act in accordance with the intentions of a third
person.
(ii)Circumstances in which a member of an association of persons and the
association may beregarded as associates:

Where the member, either alone or together with an associate or associates under another
applicationof section 85 of the Income Tax Ordinance, 2001, controls fifty per cent or more
of the rights to incomeor capital of the association;
(iii)Situation in which members of an association of persons may not be regarded as associates:
Members of an association of persons may not be regarded as associates where the
Commissioner is satisfied that neither person may reasonably be expected to act in
accordance with the intentions of theother.
3.Yes, the tax authorities would be able to recover the amount of outstanding liabilityfrom the legal
representative of Mobeen.
The legal representative is liable for:-
 any tax that Mobeen would have become liable for if he had not died; and
 any tax payable in respect of the income of Mobeen’s estate.
The liability of the legal representative shall be limited to the extent to which Mobeen’s estate is
capable of meeting the liability and such liability shall be the first charge on Mobeen’s estate, in
preference to any other outstanding liability of the deceased.

4a MAZ Enterprises

Computation of total income, taxable income and net tax

payable/refundableFor tax year 20X9
Rupees
Profit before taxation (W-1) 15,170,000

Add: Inadmissible expenses/admissible income

Cost of machinery included in the cost 2,110,000
Payment for holding annual eid-milan party -
Remuneration to each partner (150,000×3×12) 5,400,000
Cost of accounting software 180,000
Interest income - separate block of income (360,000÷0.9) 400,000
8,090,000

Less: Admissible expenses/inadmissible income

Cost of machinery as per books 2,110,000
Less: Income tax paid at import stage (110,000)
Depreciable value of machinery 2,000,000
Depreciation - Initial allowance (2,000,000×25%) 500,000
- Normal [(2,000,000–500,000)×15%] 225,000

Amortization of the Computer software

[From 1 January 20X9 to 30 June 20X9 (180,000/10×182/365)] 8,975

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Increase in financial charges

(To reserve the impact of netting off of interest income) 360,000
1,093,975
Total income 22,166,025
Less: Interest income - separate block of income (400,000)
Taxable income for the year 21,766,025

Tax liability
Tax on 6,000,000 880,000
@ 30% on amount exceeding 6,000,000 4,729,807
Tax on interest income (10%) 40,000
5,649,807
Less :Withholding tax on import of machinery (110,000)
Less :Tax deducted by the bank (40,000)
5,499,807

W-1: Computation of profit under accrual basis of accounting Rupees

Profit as given in the question - on cash basis 13,870,000
Adjustment on account of:
- Closing Stock under Absorption Cost Method 8,800,000
- Closing Stock under Prime Cost Method (7,500,000)
1,300,000
Profit under accrual basis of accounting 15,170,000

4b MAZ Enterprises

Computation of the taxable income of

Zain For tax year 20X9

Rupees
Salary (200,000×12) 2,400,000
Reimbursement for actual cost of medical services -
Purchase of car at less than market value (250,000 – 110,800) 139,200
Taxable income without share of AOP 2,539,200
Share of profit from AOP (W-1) 5,385,406
Taxable income including share of AOP 7,924,606

Tax liability for Zain

Tax on Rs. 4,800,000 300,000
15% on amount exceeding Rs. 4,800,000 468,691
Tax liability 768,691
Tax rate to be charged (768,691÷7,924,606) 9.70%
Tax liability of Zain (2,539,200×9.70%) 246,302
W-1: Determination of Zain's share of profit from MAZE Rupees

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Partners divisible income (21,766,025–5,609,807) 16,156,218

1/3 share of Zain (5,385,406–1,800,000) 3,585,406

Monthly remuneration received from MAZE (150,000×12) 1,800,000
5,385,406

5. As a legal representative, any proceedings pending against Abid’s grandfather shall continue against
Abid from the stage at which it stood on the date of his grandfather death. Further, any proceedings
which could have been initiated against the deceased if he had survived, may now be initiated against
Abid. Abid is also liable for any tax, which would have been payable by his deceased grandfather.
However, such liability is limited to the extent of Rs. 28 million i.e. value of his deceased grandfather’s
estate.

6. M/S Farhan , Kamran and Rehan

Computation of Taxable Income and Tax Liability of AOP

For the tax year 2020
Income from business Rupees
Business profit for the year 2,000,000

Add: Inadmissible expenses

Salary to Farhan 1,000,000
Salary to Kamran 800,000
Salary to Rehan 600,000
Interest to Farhan 500,000
Interest to Kamran 400,000
Interest to Rehan 300,000
3,600,000
Taxable income for the year 5,600,000

Tax liability
Tax on Rs. 4,000,000 620,000
@ 30% on amount exceeding Rs. 4,000,000 480,000
1,100,000
Amount available for distribution among the members of AOP 4,500,000

Computation of Taxable Income and Tax Liability of each Member

Farhan Kamran Rehan

------------------- Rupees -------------------
Incomeunder NTR
Salary 1,000,000 800,000 600,000
Interest 500,000 400,000 300,000
Share of profit
(900,000÷5=180,000×2:2:1) 360,000 360,000 180,000
Share of profit from FKR 1,860,000 1,560,000 1,080,000
Share of loss from another AOP(Not allowed) - - -
Income from sole proprietorship businesses - 800,000 -

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Taxable income 1,860,000 2,360,000 1,080,000

Income for rate purposes 1,860,000 2,360,000 1,080,000

Tax liability of Kamran on income from other business

Tax on Rs. 1,200,000 - 70,000 -
@ 15% on amount exceeding Rs. 1,200,000 - 174,000 -
Total tax payable - 244,000 -

Tax rate to be charged 0% 10.34% 0%

Tax liability of Kamran - 82,712 -

Income under FTR

Dividend income (Rs.102,000 /0.85) 120,000

Tax on dividend income (Rs. 120,000×15%) 18,000

Tax deducted at source (18,000)
Tax liability of Rehan -

7.

Libas & Co.

Computation of taxable income and tax liability of AOP
For the tax year 2020

Rupees
Income from business
Business profit for the year 8,500,000

Income from capital gain

Gain from sale of shares of XOK Limited [200,000×(225-200)] 5,000,000
Gain from sale of shares PBB Limited [55,000×(180–145)] 1,925,000
Gain from sale of shares PBB Limited [45,000×(180–150)] 1,350,000
Loss from sale of shares of OOI Limited [150,000×(78–86)] (1,200,000)
Total capital gain 7,075,000

Income from other sources

Loan received in cash 5,000,000

Total income 20,575,000

Less: Separate block of income - income from sale of securities (7,075,000)
Taxable income of AOP under NTR 13,500,000

Tax liability
On Rs. 6,000,000 1,220,000
On remaining Rs. 7,500,000 @ 35% 2,625,000
3,845,000
Tax on capital gain - separate block of income [7,075,000×15%] 1,061,250
Total tax payable 4,906,250

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Saba
Computation of taxable income and tax liability of Saba
For the tax year 2020
Rupees
Profit on debt at 10% [1,100,000×(10/110)] 100,000
Freelance income 1,500,000
Taxable income 1,600,000
Share of profit from AoP (13,500,000×1/4) 3,375,000
Taxable income for rate purpose 4,975,000

Tax rate applicable on Saba

Tax on 4,000,000 620,000
Tax on remaining 975,000 @ 30% 292,500
Total tax liability 912,500

Tax rate to be charged (912,500/4,975,000) 18.34%

Tax liability of Saba (1,600,000×18.34%) 293,440

8.
Kamkaj & Co.
Computation of Taxable Income
Tax Year 2020 Tax Year 2021
----------- Rupees -----------
Income from Business (18,000,000) 25,000,000
Add: Commission to SPL 7,000,000 7,000,000
(11,000,000) 32,000,000
Dividend income - 4,000,000
Total income (11,000,000) 36,000,000
Less: FTR income - (4,000,000)
Taxable income (11,000,000) 32,000,000
B/F loss (11,000,000)
Taxable income 21,000,000
Less: SPL’s share of 50% (10,500,000)
Taxable income of AOP after deducting SPL’s share 10,500,000

Tax liability of AOP: Rupees

Upto 6,000,000 1,220,000
On balance @ 35% 1,575,000
2,795,000

Computation of taxable income and tax liability of Baqir:

Tax Year 2020 Tax Year 2021

----------- Rupees -----------

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Capital gain on sale of property (5,200,000÷4) (Separateblock

of income) - 1,300,000

Tax liability on capital gain related to sale of immoveable property

[1,300,000×2.5%] 32,500

Computation of taxable income and tax liability of Omer:

Tax Year 2020 Tax Year 2021
----------- Rupees -----------
Income from Business 6,000,000 2,500,000

Taxable income 6,000,000 2,500,000

Share of profit of AOP - 5,823,000
9,705,000[12,500,000(25,000,000×50%)–2,795,000]×60%
Taxable income for rate purpose 6,000,000 8,323,000

On 6,000,000 1,220,000 1,220,000

On balance @ 35% - 813,050
1,220,000 2,033,050
Tax rate to be charged 24.43%
(2,033,050÷8,323,000)
Tax liability of Omer 1,220,000 610,750
(2,500,000×24.43%
)

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Chapter 13 | Foreign source income of resident person

1.

2. Mehreen

Computation of taxable income and income tax liability for the tax year 2016

---------------- Rupees ----------------

Pakistan source Foreign source Total
Income from salary:
Salary[300,000 × 10], [1,200,000 × 2] (a) 3,000,000 2,400,000 5,400,000

Income from business:

Speculation business - 600,000 600,000
Less: brought forward speculation loss - (380,000) (380,000)

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Net income from speculation business - 220,000 220,000

Non-speculation business - 1,480,000 1,480,000

Net business income (b) 1,700,000 1,700,000

(Loss) from other source (Carried forward) - (1,500,000) (1,500,000)

Capital gain - 950,000 950,000

Less: brought forward loss - (1,800,000) (1,800,000)
Net capital loss (Carried forward) (850,000) (850,000)

Total income (a+ b) 3,000,000 4,100,000 7,100,000

Less: exempt income

salary received from AM - (2,400,000) (2,400,000)
Taxable income 3,000,000 1,700,000 4,700,000

Since salary income is more than 50% of the taxable income, therefore, the slab applicable to salaried
individuals shall be applied.

Computation of net-tax liability:

Tax on Rs. 4,000,000 597,000
Tax @ 27.5% on the amount exceeding Rs. 4,000,000 (i.e. on 700,000) 192,500
Tax payable 789,500
Less: Tax credit
Which is lesser of (A) or (B): Business
Speculation Non-Speculation
Foreign taxes paid (A) 110,000 187,600
Proportionate Pakistan tax
[(789,500÷4,700,000) × 220,000] (B) 36,955 - (36,955)
Proportionate Pakistan tax
[(789,500÷4,700,000) × 1,480,000] (B) - 248,609 (187,600)
(224,555)
Total tax liability for the year 564,945
Less: Tax withheld at source (40,000 × 10) (400,000)
Net tax payable for tax year 2016 164,945

Un-adjusted foreign tax credit shall not be refunded, carried back to preceding year or carried to thefollowing
year.

3. Joseph is considered as a short term resident individual as he is:

 in Pakistan solely by reason of his employment
 present in Pakistan for a period not exceeding three years.
Under the Income Tax Ordinance, 2001, the foreign source income of a shortterm individual is exempt
from tax if it is not brought into Pakistan. Therefore, 25% of his foreign source income which he
brought into Pakistan is taxablewhereas 75% of his foreign source income which he kept outside
Pakistan isexempt from tax.
(ii) Since Farhan, being a citizen of Pakistan, was not resident in any of the four tax years preceding
the tax year in which he became a resident his foreign source income is exempt from tax in the tax

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year in which he became resident and following one tax year.

4. Ahmed is a returning expatriate because he was not a resident in any of the preceding four tax years.
Therefore, his foreign source income for the year from the restaurant is exempt.
(ii) Salary exceeding Rs. 15,000 per month should be paid through cheque or direct transfer to the
employees’ bank account after deduction of tax (if any), to claim it as a deduction from income
from business. In this case, although Ahmed had deducted tax at source from salaries, he paid
the monthly salary Rs. 70,000 to each employee in cash. Therefore, this expense will be
disallowed.
(iii) Cost of feasibility study conducted before commencement of the business falls under the
definition of pre-commencement expenditure which is subject to 20% amortization on straight
line bases. Therefore, the full amount of this cost will be disallowed and Ahmed will only be
allowed a deduction of Rs. 120,000 (600,000×20%) as amortization.
(iv) No tax credit will be allowed for donation paid to the non-profit organization in USA
because it does not fall under the definition of non-profit organization as per the income
tax ordinance, 2001.
 Donation expense paid to local organization will be a deductible allowance only when it
is paid to an institution named under clause 61 of 2nd schedule.
 Otherwise, Ahmed can avail a tax credit under section 61 on the donation paid to the
government hospital on average rate of tax.

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Income Tax Numerical Solutions

1. Tahir

Mr. Tahir
Computation of taxable income
Tax Year: 2015
Amount Rupees
Income from Business:
Profit before tax as per accounts 1,057,000
Add: Inadmissible expenses/admissible incomes
Accounting depreciation on used machinery 225,000
Purchase of software 975,000
Cost of preparation of feasibility study 250,000
Accounting depreciation on leased assets 260,000
Finance charges on leased assets 80,000
Running and maintenance for personal use 59,090
Provision for doubtful debts 25,000 1,874,090
Less admissible deductions/inadmissible incomes
Initial allowance on imported used machinery Rs.1,500,000 x 25% 375,000
Depreciation on used machinery (Rs.1,500,000-375,000)*15%/2 84,375
Amortization on software-12 years 81,250
Amortization of precommencement expenditure @ 20% 50,000
Leased rentals 300,000 890,625
2,040,465
Salary
Foreign salary-Exempt- Note 1 -
Capital Gain
Sale of land- Not taxable as holding over 4 years -
Taxable income 2,040,465
Computation of tax liability:
Upto Rs. 1,200,000 70,000
Balance (Rs.2,040,465-1,200,000)x15% 126,070
196,070
Less tax credit: Higher of investment in shares or life insurance
premium: Rs. 232,468/1,939,840 x lower of actual amount or 20% 39,214
of taxable income
Balance payable with return 156,856
Explanations:
N-1:
The amount received from employment in UAE is foreign source income and since Tahir is a citizen of
Pakistan and was not resident in last four tax years, such income is exempt from tax in
this and the next year.

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N-2:
Salary paid to Tahir's brother is an allowable expense as he is working as an employee in the busin
N-3:
The plot is covered in the definition of immovable property. Since holding period of property is more than
four years, the rate of tax would be zero

2. Mukkaram
Mr. Mukarram
Computation of taxable income
Tax Year: 2018
Notes Amount
Salary
Basic salary 3,000,000
Medical allowance (Rs. 37,500-25,000)x12 150,000
Conveyance allowance 300,000
Travelling allowance 138,000
Perquisite representing car (Rs. 1,000,000 x 5%) 50,000
Benefit of free of cost car 400,000
Performance bonus taxable in tax year 2019 -
Two free buffet dinner (Rs. 2000 x 2 x 12) 48,000
Reimbursement of telephone and internet 20,000 x 80% 16,000
Air conditioner and washing machiner for use at home Rs. 30,000
300,000 x 10%
Share option scheme -
4,132,000

Income from business

Sale from rice husking unit 850,000
Less expenses:
Other operating expenses 400,000
MV of agri produce used in business (5000/40 x 2500) 312,500
712,500 137,500
Income from property
Rent of agriculture land and building-Exempt -
Capital gain:
Sale of personal car- Not taxable as personal asset is not a
capital asset
Loss on sale of jewellery- No loss allowed to be recognized(Rs.
280,000-250,000)
Capital gain (Rs. 275,000-100,000-15,000)x75% 120,000

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Taxable income 4,389,500

3. Wajahat

Rupees
Income from Salary:

Basic salary (70,000×12) 840,000

Dearness allowance (10,000 × 12) 120,000
Conveyance allowance (8,000 × 12) 96,000
PF contrib. [(8,400 × 12) – (lower of Rs. 100,000 or 1/10th of basic + DA)] 4,800
Working: (100,800) or (lower of Rs.100,000 or (840,000+120,000)/10= 96,000
Interest on PF [391,000 – (higher of: interest @16% or 1/3rd of basic + DA)] 71,000
Working: (391,000/20% × 16% = 312,800 or ((840,000+120,000)/3= 320,000)
Reimbursement of electricity bill 60,000
Total income under the head salary 1,191,800
Income from business:
Tuition fees (for ten months ended 30 June 20X6) 2,198,000
Less: Admissible expenses:
Salaries paid: Wajahat (inadmissible being the owner of the centre) -
Friend ( 35,000 × 10) (350,000)
Training expenses (300,000)
Dep.: Computers (250,000 × 30%) [no initial allowance is admissible] (75,000)
Other misc. expenses (195,000)
1,278,000

Income (Separate block):

Dividend received from BEE Limited (78,200 + 9,200 + 4,600) 92,000
Dividend received from a company in U.A.E 65,000
157,000

Total income 2,626,800

Less: Separate block income - (157,000)
Less: Zakat (4,600)
Taxable income 2,465,200
Since salary income is less than 50% of the taxable income, therefore, the slab applicable
to non-salaried individuals shall be applied:
Computation of net tax liability:
Tax on Rs. 1,500,000 144,500
Tax @ 20% on the amount exceeding Rs. 1,500,000 (i.e. on 965,200) 193,040
Tax payable under NTR 337,540
Less: Tax credit on investment in pension: (887,472 × 337,540/2,465,200) (121,514)

Which is lesser of (A), (B) or (C):

 Total contribution paid by Wajahat (A) 890,000

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 20% of taxable income (2,465,200 × 20%) 493,040

Add: 2% add. for each year of age above 40 years (2%×8×2,465,200) 394,432
(B) 887,472
 50% of last assessed taxable income (1,850,000 × 50%) (C) 925,000
216,026
Add: Tax payable on dividend income (157,000 × 12.5%) (FTR) 19,625
Total tax liability for the year 235,651
Less: Tax withheld at source (Dividend) (9,200)
Net tax payable for tax year 2016 226,451

4. Bader
Computation of income tax liability
For the tax year 2016
Rupees
Income from Salary:

Basic Salary (250,000 × 12) 3,000,000

Medical allowance (28,000 × 12 – 3,000,000 × 10%) 36,000
House rent allowance (120,000 × 12) 1,440,000
Consideration for Bader’s agreement to condition of employment 900,000
Perquisite representing car W-1 68,648
Benefit on purchase of item of inventory ( 22,000 – 12,000) 10,000
Share option scheme [(375 × 2,500) – 200,000 – 300,000] 437,500
Termination benefits 600,000
Unapproved gratuity (485,000 – 75,000 exempt 410,000
Free medical treatment by SHL – exempt -
Total income under the head salary 6,902,148

Capital Gain:
Sale of 2,000 shares in MP (875,000 + 5,000 + 10,000) 890,000
Less: Cost of acquisition of shares [( 200,000+300,000+437,500) × 0.8] (750,000)
Net gain on disposal of shares 140,000

Taxable income 7,042,148

Computation of net tax liability:
Total taxable income 7,042,148
Less: Separate block
 Termination benefits (600,000)
 Unapproved gratuity (410,000)
(assuming Bader, by notice in writing to the Commissioner, would elect to be taxed on the
basis of
average rate of tax)
Taxable income ( excluding separate block income) 6,032,148
Tax on Rs. 4,000,000 597,000
Tax @ 27.5% on the amount exceeding Rs. 4,000,000 (6,032,148 – 4,000,000) 558,841

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Total gross tax payable under NTR 1,155,841

Tax on termination benefits @ average rate (1,260K /10,500K = 12% × 600,000) 72,000
Tax on unapproved gratuity @ average rate (1,260K /10,500K = 12% × 410,000) 49,200
Total tax liability 1,277,041
Less: Tax credit: either of the following two amounts would be claimed
Right shares in ML [(35,000 × 15% × 20 ) × 1,155,841 ÷ 6,032,148] 20,119 -
Investment in life insurance [(300,000 × 1,155,841 ÷ 6,032,148] 57,484 (57,484)
Total tax payable 1,219,557

Less: Taxes withheld at source from salary (1,105,000)

Net tax payable 114,557

The perquisite shall be computed as below:

FMV of the car 1,500,000
5% of the FMV (1,500,000 × 5%) 75,000
Restricted to the number of days it was used in the tax year (335 ÷ 366) 68,648

5.Mushtaq Enterprises
Computation of total income, taxable income and net tax
payable/refundable
For tax year 20X7

Income from Business: Rupees

Profit before taxation 1,800,000
Add: Inadmissible expenses/admissible income
Salary paid to salesmen [5×(22,000–6,000)×12] 960,000
Entertainment expenditures -
Research expenditure incurred outside Pakistan 150,000
Accounting loss on the sale of patents 65,000
Amortisation charged on patents for the year 25,000
Gain on sale of patents (524,000 – 430,000) 94,000
Bad debts recovered: Atif [700,000 – (800,000 – 550,000)] 450,000
Accounting depreciation 580,450
Transfer of furniture to Dubai (850,000–610,000) 240,000
Less: Admissible expenses/inadmissible income
Bad debts recovered: Aslam [1,200,000–600,000–400,000] (200,000)
Tax depreciation (W-1) (667,650)
3,496,800

Less:
B/f business loss (125,000)
Unabsorbed tax depreciation – brought forward (705,000)
(830,000)
Total business income for the year 2,666,800
Capital Gain (Separate block income)

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Gain on the sale of 6,000 shares [432,000 – (6,000 × 25)] 282,000

Total income for the year 2,948,800

Less: Separate block income (282,000)
Taxable income for the year under NTR 2,666,800

Computation of net tax liability

Tax on Rs. 2,500,000 344,500
Tax on income exceeding Rs. 2,500,000 @ 25% 41,700
Income tax payable on separate block income @ 7.5% 21,150
407,350
Less: Tax paid under (200,000)
Income tax payable with the return 207,350

W-1: Computation of tax depreciation

Depreciation on furniture (200,000 × 15%) 30,000
Used imported machine
Initial allowance (500,000 × 25%) 125,000
Depreciation [(500,000 – 125,000) × 15%] 56,250
Depreciation on additions 211,250
Depreciation for the year 456,400
667,650

6. Taqi Ahmad

Rupees
Income from Salary:
Basic Salary [(400,000+(440,000×11)] 5,240,000
Conveyance allowance [(40,000+(44,000×11)] 524,000
Medical allowance [(40,000+(44,000×11)] 524,000
Daily allowance (Special allowance) -
Performance bonus for tax year 20X7 but received in 20X8 -
Director's fees for attending board meeting - ZTL 100,000
Loan waived by ZTL (50,000×28) 1,400,000
Imputed/deemed interest on loan (1,800,000×10%) from July 20X6 to Mar 20X7 135,000
7,923,000
Income from property
Rental amount (1,800,000−300,000) 1,500,000
1,500,000
Income from other sources
Bonus shares received [5,000×22) 110,000
Dividend received (150,000/0.80 ) 187,500
Value of amenities and utilities included in rent 300,000
597,500
Capital gain
Consideration received on disposal [15,000×85] 1,275,000
Less: cost of acquisition [15,000×60] (900,000)
Gain on disposal of 15,000 shares 375,000

Total income for the year from all sources 10,395,500

Less:

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Property income-Separate block income (1,800,000−300,000) (1,500,000)

Bonus shares - FTR income (110,000)
Dividend received - FTR income (187,500)
Gain on disposal of 15,000 shares-Separate block (375,000)
(2,172,500)
Taxable income under NTR 8,223,000
Tax liability
NTR-Income
Tax on Rs. 7,000,000 1,422,000
exceeding Rs. 7,000,000 at the rate of 30% 366,900
1,778,900
Property income-Separate block income
Rent upto Rs. 1,000,000 60,000
Amount exceeding Rs. 1,000,000 i.e. Rs. 500,000 @ 15% 75,000
135,000
Capital Gain - Separate block income
Holding period is more than twelve months but less than 24 months (Rs. 46,875
375,000@12.5%)
Bonus shares (Rs. 110,000 @ 5%) 5,500
Dividend - FTR income (Rs. 187,500 @ 12.5%) 23,438
Tax payable 1,999,713
Less: Tax deducted by ZTL (2,000,000)
Tax deducted on dividend @ 20% (37,500)
Tax paid/deducted on bonus shares (5,500)
Net tax payable 43,287
Add: Tax credit previously allowed, now added back 90,000
Total tax payable 46,713

7. Mr. Qateel

Rupees
Accounting profit before taxation 2,809,297
Add: Inadmissible expenses/admissible income
Fine paid – violation of the contract -
Vehicle tax -
Accounting depreciation 1,900,000
Renewal of license fee 450,000
Replacement of transformer (KESC) – security deposit 200,000
Advance tax collected (KESC) 300,000
Donation paid in cash 64,600
Donation paid 2,000,000
Penalty paid to CIR for late filing of return 25,000
Entertainment expenditures – foreign customer -
Dividend income - Gross 800,000
Gain on sale of a private limited company shares Rs. 1,200,000.
Since holding period is > one year gain would be reduced to 75% 900,000
Finance charges on lease machinery 35,703
6,675,303
Less: Admissible expenses & inadmissible/FTR income
Renewal of license fee [450,000/10] 45,000

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Gain on sale of a private limited company shares 1,200,000

Tax depreciation as given 1,560,000
Tax depreciation on warehouse constructed N-1 244,400
Lease rental paid 270,000
Dividend income 580,000
Tax depreciation on leased machinery acquired by paying residual value 15,000
(3,914,400)
Total income for the year 5,570,200
Less: Dividend income (FTR income) N-2 (800,000)
4,770,200
Zakat deducted on dividend (100,000)
4,670,200
Deductible allowances
Donation paid – allowed upto 30% of the taxable income (1,401,060)
Taxable income under NTR 3,269,140
Computation of tax liability
Tax on 2,500,000 344,500
Tax on income exceeding 2,500,000 @ 25% 192,285
Tax payable under NTR 536,785
Tax on dividend – FTR (15%) 120,000
Total tax liability 656,785
Advance tax collected on electricity bill (300,000)
Advance tax paid (480,000)
Advance tax on dividend (120,000)
(900,000)
Income tax refundable (243,215)

Rupees
N-1: Warehouse constructed 1,040,000
Initial allowance @ 15% (1,040,000×15%) 156,000
Tax depreciation @ 10% [(1,040,000–156,000)×10%] 88,400
Total depreciation 244,400
N-2: Dividend received
Add: Zakat paid (Rs.4,000,000) 580,000
100,000
680,000
Add: Advance tax deducted 120,000
Grossed up with amount of tax deducted @ 15% 800,000

8. Ahmer Ghazi
Rupees
Income from Salary
Basic Salary (650,000×12) 7,800,000
House rent Allowance (95,000×12) 1,140,000
Medical allowance (70,000×12) 840,000
Health insurance -
Award for meeting sales target 180,000
Grant of concessional loan by DPL [Rs. 5 million @ 4% (10–6)] *183,334
Tax of Ghazi paid by DPL 1,500,000
11,643,334

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Income from property

Rent of apartment (40,000×8) 320,000

Income from capital gain

Sale of 6,000 shares @ Rs.33–23 =10 60,000

Income from other sources

Amount received for his song (Royalty) 225,000

Total income for the year from all sources 12,188,334

Less: Separate block of income
Property income 320,000
Capital gain 60,000
380,000
Taxable income under NTR 11,808,334

Tax liability under

Normal tax regime
on 7,000,000 1,422,000
exceeding 7,000,000 at the rate of 30% 1,442,500
2,864,500
Separate block – Income
Property income tax @ 5% 6,000
Capital gain tax @ 7.5% 4,500
Total tax payable 2,875,000
Less: Tax credit for investment in Sukuks (2,864,500/11,808,334×1,400,000) (339,616)
2,535,271
Less: Tax paid by DPL (1,500,000)
Income tax payable 1,035,271

9.Saleem
Computation of taxable income for the year 20X8
Rupees
Income from business
Accounting profit before adjustment 2,350,000

Add: Inadmissible expenses/admissible income

Rental charges - withholding tax deducted but not deposited 1,560,000
Depreciation on leased assets 600,000
Financial charges on leased assets 462,000
2,622,000
4,972,000
Less: Admissible expenses/inadmissible income
Accounting profit on sale of vehicle 200,000
Lease rental (857,000×70%) 599,900
Accounting gain on the sale of shares 50,000
Loss on disposal of a passenger transport vehicle (Note 1) 180,556
1,030,456

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3,941,544
Income from capital gain
Gain on the sale of share of Sun (Private) Limited
(Holding period is more than 12 months and therefore only 3/4 is taxable 500,000×3/4) 375,000

Gain on the sale of securities

Moon Limited (700,000)
Planet Limited 250,000
(450,000)
Total income 3,866,544
Add: Loss on sale of shares of listed companies - Separate block of income 450,000
Taxable income under NTR 4,316,544

Computation of tax liability

Tax on 4,000,000 719,500
Tax on income exceeding 4,000,000 @ 30% (316,544×30%) 94,963
Tax payable under NTR 814,463
Advance tax collected at the time of vehicle purchased (85,000)
Income tax payable 729,463

Note 1: Loss on disposal of a passenger transport vehicle

Consideration received on disposal of passenger transport vehicle not
plying for hire A×B/C Where (3.5×2.5/4.5) 1,944,444
(A is the amount received on disposal of the vehicle Rs. 3.50 million; B is the amount referred to in clause
(a) of sub-section (13) Rs. 2.5 million; and C is the actual cost of acquiring the vehicle Rs. 4.5 million.)
Written down value of vehicle (2.5×85%) (2,125,000)
Loss on disposal (180,556)

10. Saeed

Rupees
Income from salary
Received from HPL
Basic salary (Rs. 600,000 × 9 months) 5,400,000
Medical allowance (Rs. 66,000×9 = 594,000 – 5,400,000×10%) 54,000
Bonus (Received after year end) -
Company maintained car for:
- office use only -
- personal use only (1,900,000×10%×9/12) 142,500
Free food provided in lunch 125,000
Special allowance (Rs. 20,000×9=180,000–150,000) -
Provident fund contribution [60,000×9=540,000–150,000] (Allowedlimit is
1/10 of the basic salary or 150,000 whichever is lower) 390,000
6,111,500
Exempt income
Salary received from DSL (From July 18 to September 18)(US
$ 15,000×3 = 45,000 @ Rs.131) 5,895,000
FTR income (Separate block of income)

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Dividend income from a listed company

(575,000+62,500=637,500+112,500 for withholding tax) 750,000
Total income 12,756,500
Less:
Exempt income: Salary from DSL (5,895,000)
FTR – Dividend income (750,000)
(6,645,000)
6,111,500
Less: Deductible allowance
Zakat paid/deducted (62,500)
Taxable income for the year 6,049,000
Less: Deductible allowance
Mark-up paid to sch. bank Rs. 25×15%×7÷12 = 2,187,500
Allowed limit: 50% of the taxable income i.e. Rs. 3,024,250 or Rs. 2 million
whichever is lower (2,000,000)
Taxable income for the year 4,049,000

Tax liability
Tax on Rs. 2,400,000 60,000
Tax on amount exceeding 2,400,000 [(4,049,000–2,400,000)×10%] 164,900
224,900
Tax under final tax regime
Tax on dividend received 112,500
Total tax liability 337,400

Less: Tax already deducted

Tax on dividend income 112,500
Tax withheld from salary 1,300,000
(1,412,500)
Net tax refundable (1,075,100)

11. Shahid

Rupees
Computation of profit under accrual basis of accounting
Profit as given in the question - on cash basis 6,427,000
Adjustment on account of:
- closing stock under absorption cost method 3,200,000

- closing stock under prime cost method (2,800,000)

400,000
Profit under accrual basis of accounting 6,827,000

Income from business

Profit before taxation 6,827,000
Add: Inadmissible expenses/admissible income
Purchases of packing material (440,000×20%) 88,000
Freight charges on goods - allowed expenditure -

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Salary allowed as paid for business activities (brother) -

Penalty for late filing of income tax return 15,000
Expenditure on promotion of a product 950,000
1,053,000
Less: Admissible expenses/inadmissible income
Expenditure made for promotion of a product = 950,000/5 (190,000)
Tax depreciation (680,000)
Gain on sale of shares (45,000)
Agriculture income - Exempt income (980,000)
Profit on debt (450,000)
(2,345,000)
5,535,000
Less:
Unabsorbed tax depreciation - brought forward (568,000)
Total business income for the year 4,967,000

Capital gain
Gain on the sale of 20,000 shares 51,750

Income from other sources

Profit on fixed deposit account (FTR income) 450,000

Exempt income
Rent received for the agriculture land 980,000
Total income 6,448,750
Less:
Capital gain on sale of shares (Separate block of income) 51,750
Profit on fixed deposit account (FTR) 450,000
Rent received for the agriculture income (Exempt) 980,000
1,481,750
4,967,000
Less: Deductible allowance
Zakat paid / deducted 93,750
Taxable income for the year 4,873,250

12. Sageer

Sageer
Computation of total income, taxable income and net tax payable/refundable
For tax year 2020
Rs.
Income from salary
Basic salary [200,000×12] 2,400,000
Medical allowance [20,000×12] 240,000
Rent free accommodation 1,200,000
Insurance premium - Exempt -
Employer's contribution to provident fund (W-1) 30,000
Employee share scheme [(142×10,000)–(105×10,000)–175,000] 195,000
Concessional loan -
Leave encashment [chargeable on receipt basis] 100,000
Total income from salary 4,165,000

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Income from business - foreign source income

Online teaching (4,260×168) 715,680
Add: Withholding tax [4,260×(8/92)×168] 62,233
Total income from business 777,913

Capital gain
Gain on sale of shop [15,000,000–(19,000,000–5,000,000)]×3/4] 750,000
Gain on sale of inherited property [(18,000,000–7,000,000)×3/4] 8,250,000
9,000,000

Capital gain from sale of securities

Loss on disposal of shares (W-2) -

Total income 13,942,913

Less: Separate block of income - Capital gain from sale of immovable property (9,000,000)
Taxable income 4,942,913
Less: Donation to non-profit organization covered under 2nd Sch.
[Lower of 2,500,000 or 30% of taxable income i.e. Rs. 1,140,672] (1,140,672)
Net taxable income 3,802,241

Since salary income is more than 75% of the taxable income, the slab applicable to salaried individuals shall be
applied.

Tax liability
On Rs. 3,500,000 370,000
On remaining Rs. 302,241 @ 20% 60,448
Tax on gain on sale of immoveable property [9,000,000×10%] 900,000
Total tax liability 1,330,448
Less: Reduction in tax liability because of full time professor (W-3) (125,750)
1,204,698
Less: Foreign tax credit (W-4) (62,233)
Less: Withholding tax (160,000)
Total tax payable 982,465

W-1: Rs.
Employer's contribution [15,000×12] 180,000
In excess of lower of:
- 1/10th salary 240,000
- 150,000 150,000 (150,000)
Taxable under income from salary 30,000
W-2: Rs.
Cost of 5,000 shares of ZL:
Consideration paid for shares [105×5,000] 525,000
Consideration paid to acquire option [175,000×(5,000/10,000)] 87,500
Taxable amount included in salary income [195,000×(5,000/10,000)] 97,500
710,000
Consideration received for disposal 675,000
Loss on disposal (35,000)
W-3: Rs.
Tax payable on salary Rs. 4,165,000:
On Rs. 3,500,000 370,000
On remaining Rs. 665,000 133,000
503,000
Tax reduction because of employment as full time professor @ 25% 125,750
W-4: Rs.

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Foreign tax credit lower of;

- foreign tax paid 62,233
- Pakistan tax payable [777,913×{1,204,698/(3,802,241+9,000,000)}] 73,202 62,233

13. Muhammad Asghar

Income from business

Profit before tax 2,468,000
Add: Inadmissible expenses / admissible income
Raw material and finished goods disallowed 20% 7,800,000×20% 1,560,000
Accounting depreciation 2,100,000
Provision for slow moving inventory 1,800,000
Expenditure on Eid-Milan party -
Penalty paid to a customer -
Donation paid to hospital established by local government 2,300,000
Installation charges of imported plant 375,000
Reward paid in cash to salesmen 500,000
8,635,000
Less: Admissible expenses / inadmissible income
Amortization of pre-commencement expenditure 3,400,000×20% (680,000)
Tax depreciation (1,900,000)
Initial allowance of imported plant (2,500,000+375,000)×25% (718,750)
Depreciation of imported plant (2,500,000+375,000–718,750)×15%×50% (161,719)
Dividend received from a listed company (174,000)
Gain on sale of shares in APL (660,000)
(4,294,469)
Income from other sources
Dividend received - FTR income (174,000+30,000=204,000/0.85) 240,000

Capital gain
Gain on disposal of APL (Treated as a public company because 60% shares of APL are held
by Fed Govt.) 660,000
Total income for the year from all sources 7,708,530

Less: Separate block of income

Dividend received - FTR income 240,000
Gain on disposal of public company 660,000
900,000
6,808,530
Less: Deductible allowance
Zakat paid/deducted (30,000)
Taxable income under NTR 6,778,530

Tax liability
Tax on Rs. 6,000,000 1,220,000
On balance 272,486
Tax liability under normal tax regime 1,492,486
Less: Tax credit on donation
Lesser of 2,300,000 or 30% of the taxable income i.e. Rs. 2,033,559 (1,492,486/
6,778,530×2,033,559) (447,746)
1,044,740
Dividend income: Tax at the rate of 15% - FTR 36,000

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Gain on sale of shares of public company 99,000

Total tax payable 1,179,740
Less: Advance tax paid (200,000)
Withholding tax deducted (1,400,000)
Withholding tax deducted (Dividend) (36,000)
Tax collected at import stage (150,000)
Tax refundable 606,260

14. Nauman

Rupees
Income from salary
Basic salary [120,000×12] 1,440,000
Medical allowance [240,000(20,000×12) –144,000(1,440,000×10%)] 96,000
House rent allowance (60,000×12) 720,000
Company maintained car for both official and personal use (1,400,000×5%) 70,000
Purchase of car on book value (1,000,000 – 450,000) 550,000
Employer’s contribution to provident fund [18,000×12=216,000–
144,000(1,440,000×10%) (Allowed limit is 1/10 of the
basic salary OR 150,000 whichever is lower) 72,000
Interest on provident fund [540,000–480,000{higher of: interest @ 16%
i.e. 480,000 (540,000÷18%)×16% OR 480,000(1/3rd of basic salary
i.e.(1,440,000÷3)}] 60,000
Relocation allowance – exempt -
Bonus – [not taxable in TY2021 as it is received in July 2021) -
Loan obtained on concession rate [5,000,000×4%(10%-6%)×(3÷12)] 50,000
Legal expenses – Not deductible being no deduction shall be allowed for expenses
incurred in earning salary income -
Total income from salary 3,058,000

Income from property

Rent income 800,000(1,200,000‒400,000)×9/12 600,000
Less: Repair allowance (600,000÷5) (120,000)
Insurance premium (50,000)
Administration and collection charges to the extent of 4% of chargeable rent
600,000×4% (24,000)
406,000
Income from other sources
Interest income (510,000÷0.85)+200,000 800,000
Income from utility, cleaning and security 400,000
Less: Expenditure (250,000)
150,000
950,000

Total income from all sources 4,414,000

Less: Separate block of income (interest income) (800,000)
3,614,000
Less: Deductible allowances
Zakat (200,000)
Profit on debt (5,000,000×10%×3÷12) (125,000)

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Taxable income under NTR 3,289,000

15. KE Enterprises

Rupees
Income from business
Profit before tax 12,707,000
Add: Inadmissible expenses / admissible income
Accounting depreciation 1,200,000
Salary paid in cash 40,000
Cost related to scientific research incurred in Pakistan -
Expenditure paid to Chinese company for research work 700,000
Instalment of industrial plot being capital payment in nature 650,000
Purchase of goats for Eid-ul-Azha 225,000
Donation to approved NPO 1,000,000
Health insurance premium 200,000
4,015,000
Less: Admissible expenses and inadmissible / FTR income
Tax refund received from Income tax department (720,000)
Tax depreciation (W-1) (1,590,015)
Loss on disposal of motor vehicle (W-2) (28,000)
Capital gain not to be taxed under business income (430,000+250,000) (680,000)
(3,018,015)
Income from business 13,703,985

Capital gain
Capital gain on sale of securities (430,000+250,000) 680,000

Income from other sources

Additional payment received on delayed tax refund 80,000
Total income for the year from all sources 14,463,985

Less:
25% of Capital gain on disposal of investment in Manzil Limited is exempt due to
holding period is greater than one year (430,000×25%) (107,500)
Capital gain on disposal of investment in Himmat Limited as separate block of
income (250,000)
Donation to NPO listed in Second Schedule (1,000,000×40%) *(400,000)
Taxable income under NTR 13,706,485

Tax liability
Tax on Rs. 6,000,000 1,220,000
On balance (13,706,485–6,000,000)×35%) 2,697,270
Tax liability under normal tax regime 3,917,270
Tax credit on:
donations (3,917,270÷13,706,485×*600,000) (171,478)
health insurance premium (3,917,270÷13,706,485×150,000) (42,870)
3,702,922

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Capital gain under section 37A 250,000×15% 37,500

Tax payable by Abbas 3,740,422
*being donation amount is less than 30% of taxable income.

W-1: Tax depreciation: Rupees

Opening balances:
Plant and machinery (6,860,000×15%) 1,029,000
Computer and related products (800,000×30%) 240,000
Motor vehicles 2,222,000[3,000,000–778,000(W-2)]×15%×80% 266,640
1,535,640
New computer:
Initial allowance (150,000×25%) 37,500
Normal depreciation (150,000×75%×30%×50%) 16,875
1,590,015

W-2: Computation of tax loss on sale of motor vehicle Rupees

Cost 1,000,000
Depreciation TY 2019 (1,000,000×15%) (150,000)
TY 2020 (850,000×15%) (127,500)
TY 2021 -
(277,500)
Tax WDV 722,500
Disallowed depreciation (277,500×20%) 55,500
778,000
Sale proceeds 750,000
Loss on disposal 28,000

16. Aakash Kumar

Rs. in million
Income from business
Loss before tax (87.0)
Add: Inadmissible expenses / admissible income
Commission expense disallowed due to sale to inactive tax payer [2.5 0.1(50×0.2%)] 2.4
Accounting depreciation 40.0
Bad debts recovered from Shameem [16.8 6(19.2 13.2)] 10.8
Outstanding payments for more than 3 years 14.0
Financial charges waived by the bank 2.8
70.0
Less: Admissible expenses and inadmissible / FTR income
Penalty -
Freight charges paid in cash -
Tax depreciation (48.0)
Insurance claim received (6.0)
Loss on disposal of vehicle (W-1) (1.2)

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Reversal of Bad debts recovered recorded as other income (16.8+10.6) (27.4)

Bad debts recovered from Faheem [10.6 14(28.8 14.8)] (3.4)
Rental income – Chargeable under income from other sources (21.6)
(107.6)
Income from non-speculation business (124.6)

Income from speculation business

Net gain from derivative contract 23.0
Income from business (A) (101.6)

Capital gain
Sale of property (20÷4) 5.0
Sale of private company shares (3.6×3/4) 2.7
(B) 7.7

Income from other sources

Rental income from leasing of property comprised of building and 2nd hand locally
purchased plant (1.8×12) 21.6
Less: Deductions
Repair and maintenance (actual) (3.2)
Depreciation of building (85×90%×90%×10%) (6.9)
Depreciation of plant (34×15%×50%) (2.6)
(C) 8.9

Total income (A+B+C) (85.0)

Less: Capital gain on sale of property (separate block of income) (5.0)
Taxable income (90.0)

Since Aakash’s taxable income for tax year 2022 is negative, his share of profit from associate
is ignored.

Tax Liability Rs. in million

Tax on capital gain on sale of property (separate block of income) (5×3.5%) 0.175

W-1: Loss / Gain on disposal of vehicle Rs. in million

Insurance claim 6.0
Cost 10
Depreciation TY 2020 (10× 15%) (1.5)
TY 2021 (10×85%×15%) (1.3)
TY 2022 -
7.2
Loss on disposal of vehicle (1.2)

Note: Answers in which loss has been computed by treating the vehicle as passenger transportnot plying for
hire, has also been considered correct.

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17. Basit

Rupees
Salary
Pakistan source income:
Salary [610,000×7] 4,270,000
Allowance for services of domestic servant [60,000×7] 420,000
Allowance @ 5% of salary solely expended in the performance of his duties of
employment (4,270,000×5%) 213,500
Acquired car on lease -
Shares acquired under employee share scheme
[1,170,000(13,000×90)–390,000(13,000×30)] 780,000
Leave encashment 320,000
Gratuity (2,200,000–300,000) 1,900,000
Salary arrears of tax year 2021 700,000
Foreign source income:
Salary (3,200×250×3) 2,400,000
Total income from salary 11,003,500

Capital gain
Loss on sale of ML’s shares [400,000(5,000×80)–450,000(5,000×90)] (50,000)

Income from other sources

Pakistan source income:
Gift received 200,000
Foreign source income:
Income earned from university [1,000(1,500–500)×250] 250,000
450,000

Total income 11,403,500

Less: Foreign source salary – Exempt (2,400,000)
Add: Capital loss (Separate block of income) 50,000
Taxable income 9,053,500

Tax liability
On Rs. 8,000,000 1,345,000
On remaining Rs. 1,053,500 @ 25% 263,375
1,608,375
Less: Foreign tax credit [250,000×17.77%(1,608,375/9,053,500×100) = 44,425]
OR [225×250 = 56,250] whichever is lower. (44,425)
1,563,950
Less: Tax credit for investment in mutual fund
[1,810,700(9,053,500×20%)×17.27%(1,563,950/9,053,500×100)]
(312,708)
1,251,242
Less: Withholding tax (1,400,000)
Tax refundable 148,758
(b) ArRears amount may be taxed at the rates of tax year 2021 that would have been
ap
aplicable if the salary had been paid to the Basit in tax year 2021.

(c) Basit is required to furnish a foreign income and assets statement giving particulars of:

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(i) his total foreign assets and liabilities as on 30 June 2022;

(ii) any foreign assets transferred by him to any other person during tax year 2022 andthe
consideration for the said transfer; and
(iii) complete particulars of foreign income, the expenditure derived during the tax year2022
and the expenditure wholly and necessarily for the purposes of deriving the said income.

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Chapter 14 | Returns
1. (a) The following persons are required to furnish a return of income for a tax year:
(i) Every company
(ii) Every person (other than a company) whose taxable income for the year exceeds the
maximum amount that is not chargeable to tax
(iii) Any non-profit organisation
(iv) Any welfare institution
In addition to the above, return is also required to be filed by a person who, -
(i) has been charged to tax in respect of any of the two preceding tax years;
(ii) claims a loss carried forward for a tax year;
(iii) owns immovable property with a land area of two hundred and fifty square yards or more or
owns any flat located in areas falling within the municipal limits existing immediately before the
commencement of local government laws in the provinces; or areas in a cantonment; or the
Islamabad capital territory.
(iv) owns immoveable property with a land area of five hundred square yards or more located in
a rating area;
(v) owns a flat having covered area of two thousand square feet or more located in a rating
area;
(vi) owns a motor vehicle having engine capacity above 1000 CC;
(vii) has obtained National Tax Number;
(viii) is the holder of commercial or industrial connection of electricity where the amount of
annual bill exceeds rupees five hundred thousand.
(ix) is a resident person registered with any chamber of commerce and industry or any trade or
business association or any market committee or any professional body including Pakistan
Engineering Council, Pakistan Medical and Dental Council, Pakistan Bar Council or any Provincial
Bar Council, Institute of Chartered Accountants of Pakistan or Institute of Cost and Management
Accountants of Pakistan.
(x) every individual whose income under the heading ‘Income from business’ exceeds Rs.
300,000 but does not exceed Rs. 400,000 is also required to file tax return.
(b) In the following circumstances, the Commissioner may require a person or person’s representative
to furnish a return of income for a period of less than twelve months:
(i) the person who has died;
(ii) the person who has become bankrupt or gone into liquidation;
(iii) the person who is about to leave Pakistan permanently;
(iv) the Commissioner otherwise considers it appropriate to require such a return to be furnished.

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(c) The Commissioner may, if a taxpayer fails to furnish return of income as required, based on any
available information or material and to the best of his judgment, make a provisional assessment of the
taxable income and issue a provisional assessment order specifying the taxable income and the tax due
thereon.
The provisional assessment order is treated to be as the final assessment order after the expiry of forty-
five days from the date of service of order of provisional assessment

2. Persons not liable to file tax return:

The following persons may be granted immunity from filing of tax return u/s 114 of the Income Tax
Ordinance, 2001 solely by reason of owning immovable property with a land area of two hundred and
fifty square yards or more or any flat located in areas falling within the municipal limits:
• a widow;
• an orphan below the age of twenty-five years;
• a disabled person; or
• a non-resident person.

3. a) Persons liable to file a tax return

The following persons are required to furnish a return of income for a tax year:
(i) Every company
(ii) Every person (other than a company) whose taxable income for the year exceeds the maximum
amount that is not chargeable to tax
(iii) Any non-profit organization
(iv) Any welfare institution
In addition to the above, return is also required to be filed by a person who, -
(i) has been charged to tax in respect of any of the two preceding tax years;
(ii) claims a loss carried forward for a tax year;
(iii) owns immovable property with a land area of two hundred and fifty square yards or more or owns
any flat located in areas falling within the municipal limits existing immediately before the
commencement of local government laws in the provinces; or areas in a cantonment; or the Islamabad
capital territory.
(iv) owns immoveable property with a land area of five hundred square yards or more located in a rating
area;
(v) owns a flat having covered area of two thousand square feet or more located in a rating area;
(vi) owns a motor vehicle having engine capacity above 1000 CC;
(vii) has obtained National Tax Number;
(viii) is the holder of commercial or industrial connection of electricity where the amount of annual bill
exceeds rupees five hundred thousand.
(ix) is a resident person registered with any chamber of commerce and industry or any trade or business
association or any market committee or any professional body including Pakistan Engineering Council,
Pakistan Medical and Dental Council, Pakistan Bar Council or any Provincial Bar Council, Institute of
Chartered Accountants of Pakistan or Institute of Cost and Management

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Accountants of Pakistan.
(x) every individual whose income under the heading ‘Income from business’ exceeds Rs. 300,000 but
does not exceed Rs. 400,000 is also required to file tax return.
(b)
(i) The Commissioner may, by notice in writing, require the following persons or their representatives to
furnish a return of income for a period of less than twelve months:
a person who has died;
a person who has become bankrupt or gone into liquidation; a person who is about to leave
Pakistan permanently;
where the Commissioner otherwise considers it appropriate to require such a return to be furnished.
(ii) If a person fails to furnish the return as required in (i) above then the Commissioner may, based on
any available information or material and to the best of his judgment, make a provisional assessment of
the taxable income of the person and issue a provisional assessment order specifying the taxable
income and the tax due thereon.
The provisional assessment order is treated as the final assessment order after the expiry of forty-five
days from the date of service of order of provisional assessment.
4.

Mr. Zahid
Wealth Statement
For the tax year 20X7
2017
Rupees
Agriculture land in Hyderabad 5,000,000
Residential property in DHA Karachi 3,000,000
Investment in shares of listed companies (1,100,000–100,000–50,000) 950,000
Business capital FG & Co. (4,000,000+2,540,000–450,000) 6,090,000
Advance against bungalow 1,000,000
Motor Vehicle 1,540,000
Cash at banks 730,000
Cash 157,500
Total 18,467,500
Less: Bank loan – closing balance (1,300,000)
Wealth as on 30 June 20X7 17,167,500

Wealth reconciliation statement

Wealth as on 30 June 20X7 17,167,520
Wealth as on 30 June 20X6 14,040,000
Net increase in wealth 3,127,500

Inflows
Income from business 2,540,000
Agriculture income – Exempt 2,500,000
Capital gain [(350,000 – 50,000 – 37,500)] 262,500
5,302,500
Outflows
Gift to brothers – Listed company shares and shares sold 100,000

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Personal expenses 2,075,000

2,175,000
Net increase in wealth 3,127,500

5.

1)
On or before 31 August next following the end of tax year.
2)
On or before 30 September next following the end of the tax year.
3)
Due date fixed for submission of tax return by the Commissioner.
4)
Due date specified in the notice for submission of tax return or thirty days from the date of issuance
of notice.
5) If tax year ends between 1 January to  On or before 31 December next
30 June followingthe end of tax year.
 If tax year ends between 1 July to  On or before 30 September next
31December followingthe end of tax year.

6.
Imran would be required to disclose following particulars in his wealth statement:
 Total assets and liabilities as on 30 June;
 Total assets and liabilities of his spouse, minor children, and otherdependents as on 30 June;
 Any assets transferred by him to any other person during the tax year 20X9and the
consideration for the transfer;
 Total expenditure incurred by him, his spouse, minor children and otherdependents
during the tax year and the details of such expenditure; and
 The wealth reconciliation statement.

7. Every resident taxpayer being an individual having foreign income of not less than ten thousand
United States dollars or having foreign assets with a value of not less than one hundred thousand United
States dollars shall furnish a statement, hereinafter referred to as the foreign income and assets
statement, in the prescribed form and verified in the prescribed manner giving particulars of:
(i) the person’s total foreign assets and liabilities as on the last day of the tax year;
(ii) any foreign assets transferred by the person to any other person during the tax year and the
consideration for the said transfer; and
(iii) complete particulars of foreign income, the expenditure derived during the tax year and the
expenditure wholly and necessarily for the purposes of deriving the said income.
The Commissioner may by a notice in writing require any person being an individual who, in the opinion
of the Commissioner on the basis of reasons to be recorded in writing, was required to furnish a foreign
income and assets statement but who has failed to do so to furnish the foreign income and assets
statement on the date specified in the notice.”
8. Aoun has to comply with the following conditions in order to submit a valid revisedreturn:
 The revised return should be accompanied by the revised accounts.
 The reasons for revision of return, in writing duly signed by the taxpayer,should be filed with
the return.
 Permission of the Commissioner in writing for revision of return should be obtained. However,

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this condition shall not apply if revised return is filed within60 days of filing of return.
 Taxable profit declared is not less than profit determined by an order or loss declared is not
more than loss determined by an order.
 Approval required from Commissioner shall be deemed to have been granted by the
Commissioner if:
– The Commissioner has not made an order of approval in writing for revision of return,
before the expiration of 60 days from the date when the revision of return was sought; or
– Taxable income declared is more than or the loss declared is less than the income or loss,
as the case may be determined under Assessments.

9.

Treatment in wealth statement Treatment in wealth reconciliation

(i) Investment in AOP is shown as Rs. Share of profit in AOP of Rs. 1,400,000 is
6,700,000 (5,300 + 1,400). reflected as inflow.
However, car being provided by AOP is
not shown in wealth statement.
(ii) 10 tola gold at value of Rs. 500,000 is No effect
shown. Current market value is ignored
in wealth statement.
(iii) Cash and bank balance of Rs. 1,876,000 Gain on sale of Rs. 176,000 (1,876,000–
being sale proceeds are shown. 1,700,000) is reflected as inflow.
(iv) Loan outstanding at 30 June 2021 of Rs. No effect
400,000 (1,000,000–600,000) is shown
as liability.

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Chapter 15 | Assessment, Records and Audit

1.

(a) Revision of assessment by the Commissioner:

An assessment order shall only be amended by the Commissioner where, on the basis of definite
information acquired from an audit or otherwise, the Commissioner is satisfied that:-
 any income chargeable to tax has escaped assessment; or
 total income has been under-assessed, or assessed at too low a rate, or has been the subject
ofexcessive relief or refund; or
 any amount under a head of income had been mis-classified.
The Commissioner may also amend the assessment if after making necessary enquiries he considers that
the assessment order is erroneous in so far it is prejudicial to the interest of revenue.
(b)
The Commissioner shall not revise any assessment order:-
 after the expiry of five years from the end of the financial year in which the order was issued
ortreated as issued.
 if an appeal against the order lies to the Commissioner (Appeals) or to the Appellate Tribunal
andthe time within which such appeal may be made has not expired; or
 The order is pending in appeal before the Commissioner (Appeals) or has been made the
subjectof an appeal to the Appellate Tribunal.
Further an assessment shall not be amended unless the taxpayer has been provided with an opportunity
of being heard.
2.

When the Commissioner has definite information acquired from an audit or otherwise, the
Commissioner is satisfied that:
 Any taxable income has escaped assessment;
 Total income has been under assessed or assessed at too low tax rate or has been the
subjectof excessive relief or refund; or
 Any amount under a head of income has been misclassified.
The Commissioner considers that the assessment order is erroneous in so far as it is prejudicial to the
interest of revenue.

Time period within which assessment can be amended:

The Commissioner is empowered to amend the assessment order within the later of:
 Five years from the end of financial year in which the original assessment order is issued or
treated as issued by the Commissioner; or One year from the end of financial year in which the
amended assessment order is issued or treated as issued.

3. Under the provisions of the Income Tax Rules 2002, following are the records to bekept by a tax payer in
respect of his income from:
(i) Salary
 Salary certificate indicating the amount of salary and tax deductedtherefrom.
(ii) Property

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 Tenancy agreement, if executed

 Tenancy termination agreement, if executed
 Receipt for amount of rent received
 Evidence of deductions claimed in respect of premium paid to insure the building, local
rate, tax, charge or cess, ground rent, profit/interestor share in rent on money borrowed,
expenditure on collecting the rent, legal services and unpaid rent.
(iii) Capital gain
 Evidence of cost of acquiring the capital asset
 Evidence of deduction for any other costs claimed
 Evidence in respect of consideration received on disposal of the capitalasset.

4.
i. Under the Income Tax Ordinance, 2001 if in the opinion of the Commissioner, an asset is
acquired from any income chargeable to tax but could not be charged to tax, it is considered
to be a concealed asset.
ii. Where a concealed asset of any person is impounded by any department or agency of the
Federal Government, the Commissioner may at any time, before making a best judgement or any
amended assessment order, issue to the persona provisional assessment order or provisional amended
assessment order, as the case may be, for the last completed tax year during which the concealed
assetwas accounted for.
i. The Commissioner of income tax is empowered to amend the assessment of the taxpayer
within five years from the end of the financial year in which theCommissioner has issued or
treated to have issued the assessment order to the taxpayer Accordingly, in this case amendment
can be made by 30 June 2019.

ii.
Where the Commissioner has issued the amended assessment order to thetaxpayer, the
limitation period should be later of:
a. five years from the end of the financial year in which the originalassessment
order is issued or treated as issued by the Commissioner; or
b. one year from the end of the financial year in which the amendedassessment
order is issued or is treated as issued to the tax payer.
The time limitation for the next assessment will therefore to be by 30 June2019.

5.

(a) The books of accounts required to be maintained by a taxpayer who has business
income(only) up to Rs. 500,000 are as follows:

Serially numbered and dated cash-memo / invoice / receipt for each transaction of saleor
receipt containing the following:
(i) taxpayer’s name or the name of his business, address, national tax number orCNIC
and sales tax registration number, if any
(ii) the description, quantity and value of goods sold or services rendered;

Where each transaction does not exceed Rs. 100, one or more cash-memos per day forall
such transactions may be maintained

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Daily record of receipts, sales, payments, purchases and expenses a single entry in
respect of daily receipts, sales, purchases and different heads of expenses will suffice;
and Vouchers of purchases and expenses.
(b) Provisions regarding Special Audit Panel
1 The panel shall comprise of any two or more members from:

(i) an officer of Inland Revenue;

(ii) a firm of chartered accountants;
(iii) a firm of cost and management accountants; or
(iv) any other person as directed by the Board.

The Panel shall be headed by a Chairman who shall be an officer of Inland Revenue;
2 Powers for conducting an audit shall only be exercised by officer(s) of Inland Revenue
who are member(s) of the panel, and authorized by the Commissioner;
3 Where a person fails to produce any accounts, documents and records, required to be
maintained or any other relevant document, electronically kept record, electronic machine
or any other evidence that may be required by the Commissioner or the panel for the
purpose of audit or determination of income and tax due thereon, the Commissioner may
proceed to make best judgment assessment and the assessment
treated to have been made on the basis of return or revised return filed by the taxpayershall
be of no legal effect.
4 If any member of the panel, not being the Chairman, is absent from conducting an
audit, the proceedings may continue and the audit conducted by the special audit panelshall
not be invalid or be called into question merely on account of such absence;
5 Functions performed by the officer or officers of Inland Revenue as members of the
special audit panel to conduct audit, shall be treated as having been performed by the
special audit panel;
6 The Board may prescribe the mode and manner of constitution, procedure andworking of
the special audit panel.

6.

Foreign Income and Assets Statement:

Every resident taxpayer being an individual having foreign income of not less than ten thousand
United States dollars or having foreign assets with a value of not less than one hundred thousand
United States dollars shall furnish a statement, hereinafter referred to as the foreign income and
assets statement, in the prescribed form and verified in the prescribed manner giving particulars of:
(i) the person’s total foreign assets and liabilities as on the last day of the tax year;

any foreign assets transferred by the person to any other person during the tax year andthe
(ii) consideration for the said transfer; and

complete particulars of foreign income, the expenditure derived during the tax year and the
(iii) expenditure wholly and necessarily for the purposes of deriving the said income.

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The Commissioner may by a notice in writing require any person being an individual who, in the
opinion of the Commissioner on the basis of reasons to be recorded in writing, was required to
furnish a foreign income and assets statement but who has failed to do so to furnish the foreign
income and assets statement on the date specified in the notice.”
Under the Income Tax Ordinance, 2001 if in the opinion of the Commissioner, an asset is acquired
from any income chargeable to tax but could not be charged to tax, it is considered to be a
concealed asset.

The Commissioner may at any time before issuing any assessment order under section 121 (best
assessment order) or 122 (amended assessment order) issue to the person a provisional assessment
order or provisional amended assessment order as the case may be.

While issuing the assessment order the Commissioner, shall take into account the computation of
taxable income and tax payable for the last completed tax year of the person during which the
concealed asset was accounted for.

The Commissioner shall finalize the provisional order or provisional amended assessment order as
soon as possible.

7.
The following books of account are required to be maintained by a manufacturer having turnover
exceeding Rs. 2.5 million:
Serially numbered and dated cash-memo / invoice /receipt for eachtransaction of sale or receipt
containing the following:
taxpayer’s name or the name of his business address, national taxnumber or CNIC and sales tax
registration number, if any
the description, quantity and, value of goods sold
where a single transaction exceeds Rs. 10,000 with the name andaddress of the customer

Cash book and/or bank book

Sales day book and sales ledger (where applicable)
Purchases day book and purchase ledger (where applicable)
General ledger
Vouchers of purchases and expenses and where a single transaction exceeds
Rs. 10,000 with the name and address of the payee;
Stock register of stock-in-trade (major raw materials and finished goods) supported by gate in-ward and
outward records and quarterly inventory ofall items of stock-in-trade including work-in-process showing
description,quantity and value.

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8.
Definite information includes information on sales or purchases of any goods made by the taxpayer,
receipts of the taxpayer from services rendered or other receipts chargeable to tax under the Ordinance
on the acquisition / possession / disposal of any money / asset / valuable article, or investment made or
expenditure incurred by the taxpayer.

 Commissioner is empowered to amend further the original assessment order asmany times
as may be necessary on the basis of audit or definite information that:
 any taxable income has escaped assessment;
 total income has been under assessed or assessed at too low tax rate or has been the
subject of excessive relief or refund; or
 any amount under a head of income has been misclassified.
The Commissioner may also amend the original assessment order if he considers that the
assessment order is erroneous in so far as it is prejudicial to the interest of revenue.

 However, the Commissioner can make amendment in the original assessmentorder within the
later of:
_ five years from the end of the financial year in which the original assessmentorder is issued
or treated as issued by the Commissioner; or
– one year from the end of the financial year in which the amended assessment
order is issued or is treated as issued.

 Considering the above provisions of law, SGL’s position is as follows:

– Five-year period will be completed on 30-06-2021 as the original assessment
order was filed on 30-09-2015 (financial year 30-06-2016)
– One year would be completed on 30-06-2021 as the amended assessment
order was issued on 24 February 2020 (financial year 30-06-2020).
Therefore, the Commissioner still have time to further amend the assessment order.
However, no further amendment can be made by the Commissioner unless the SGL has been
provided with an opportunity of being heard.

9.
Particulars Due/last date
Filing of normal tax year return for the year ended
30 June 2022 31 Dec 2022
Filing of transitional tax year return 30 Sep 2023
Filing of first special tax year return 30 Sep 2024
Amendment of assessment related to normal tax
year for the year ended 30 June 2022 30 June 2028
Amendment of assessment related to first special
tax year 30 June 2029

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10. ‘Sectoral benchmark ratios’ means standard business sector ratios notified by the Board on the basis
of comparative cases and includes financial ratios, production ratios, gross profit ratio, net profit ratio,
recovery ratio, wastage ratio and such other ratios in respect of such sectors as may be prescribed.
Where a taxpayer:
 has not furnished record or documents including books of accounts;
 has furnished incomplete record or books of accounts; or
 is unable to provide sufficient explanation regarding the defects in records,documents or books
of accounts, it shall be construed that taxable income has not been correctly declared and the
Commissioner shall determine taxable income on the basis of sectoral benchmark ratios prescribed
by the Board.

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Chapter 16 | Appeal, References and Petitions

1. The dates by which appeal can be filed with the Commissioner (Appeals) in the following cases:
(i) Date of assessment order is irrelevant; 30 days will be calculated from date of service of
demand notice that is 1 January 2015. Thus appeal can be filed by 31.1.2015.
(ii) Sixty days from the submission of refund application i.e. 17 June 2015, Appeal can be filed
(within 30 days) by 17.07.2015.
2. (a) An appeal may be filed with the Commissioner if a person is dissatisfied with the order passed as
follows:
 A best judgment assessment (ex-parte assessment) based on any available information or
 material to the best of the Taxation Officer’s / Commissioner’s judgment.
 An amendment of assessment issued by the Commissioner
 An order holding an individual personally liable to pay the amount of tax, which was required to
 be collected or deducted by him/her or because of failure to pay the collected or deducted
amount as required by the law.
 An order declaring or treating a person as a representative of a non-resident person.

(b) Sadiq Ali shall file the appeal in the prescribed form, verified in the prescribed manner, be
accompanied by the prescribed fee and shall precisely state the grounds upon which the appeal is made.
The appeal should be filed within 30 days of the service of intimation of the order. However,
Commissioner (Appeals) may condone the delay in filing of an appeal upon application in writing by the
appellant.
3.

(i) Rubina can file an appeal with Commissioner (Appeals) within 30 days from the date of
service of notice of demand which is 31 August 2019.
(ii) In disposing of an appeal, the Commissioner (Appeals) may:

(iii) make an order to confirm, modify or annul/set aside the assessment order, after examining
such evidence as required by him respecting the matters arising in appeal or causing such
further enquires to be made as he deems fit; or
(iv) in any other case, make such order as the Commissioner (Appeals) thinks fit.

(v) If the Commissioner (Appeals) is also of the opinion that payment of this amount will cause undue
hardship to Rubina he may, after affording an opportunity of being heard to the Commissioner
against whose order appeal has been made, stay the recovery of such tax for a
period not exceeding thirty days in aggregate.
The Commissioner (Appeals), after affording opportunity of being heard to the Commissioner
against whose order appeal has been made, may stay the recovery of such tax for a further period of
thirty days, provided that the order on appeal shall be passed within the said period of thirty days.
(vi) Rubina may appeal to the Appellate Tribunal (AT) against the order issued by the
Commissioner (Appeals) within sixty days of the date of service of order of Commissioner
(Appeals).

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Chapter 17-19 | Sales Tax Theory

1. (a)

(i) Following persons are required to be registered under this Act, namely: -
a) a manufacturer who is not running a cottage industry;
b) a retailer who is liable to pay sales tax excluding such retailer required to pay sales tax
through his electricity bill;
c) an importer;
d) an exporter who intends to obtain sales tax refund against his zero-rated supplies;
e) a wholesaler, dealer or distributor; and
f) a person who is required, under any other Federal law or Provincial law, to be registered for
the purpose of any duty or tax collected or paid as if it were a levy of sales tax to be collected
under the Act;
(ii) If there is a change in the rate, tax shall be applicable as under: -
1) A taxable supply made by a registered person shall be charged to tax at such rate which is in
force at the time of making supply;
2) Imported goods shall be charged to tax at such rate as is in force:
a) in case the goods are entered for home consumption, on the date on which a goods
declaration is presented under section 79 of the Customs Act, 1969; and
b) in case the goods are cleared from warehouse, on the date on which a goods
declaration for clearance of such goods is presented under section 104 of the Customs
Act, 1969.
Where goods declaration is presented in advance of the arrival of the conveyance by which the goods
are imported, the tax shall be charged at the rate as is in force on the date on which the manifest of the
conveyance is delivered.
If the tax is not paid within seven days of the presenting of the goods declaration under section 104 of
the Customs Act, the tax shall be charged at the rate as is in force on the date on which tax is actually
paid.

2. (a) A registered person shall not be entitled to deduct input tax paid on:
I. the goods or services which are not used or not to be used for the manufacture or production
of taxable goods or for taxable supplies made or to be made by him;
II. the goods on which extra amount of tax is payable under sub-section (5) of section 3;
III. any other goods or services which the Board with the approval of the Federal Government
may by a notification in the official Gazette specify;
IV. the goods or services in respect of which sales tax has not been deposited in the Government
treasury by the respective supplier;
V. fake invoices;
VI. purchases made by a registered person in case he fails to provide information relating to his
imports, purchases, sales etc. as required by the Board through a notification u/s 26(5);
(b) Provision relating to zero rating shall not apply in respect of a supply of goods which:

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(i) are exported, but have been or are intended to be re-imported into Pakistan; or
(ii) have been entered for export under the Customs Act, 1969, but are not exported; or
(iii) have been exported to a country specified by the Federal Government, by Notification in the
official Gazette.
Federal Government may, by a notification in the Official Gazette, restrict the amount of credit for input
tax actually paid and claimed by a person making a zero-rated supply of goods otherwise chargeable to
sales tax.
(c)
(1) Any person who has collected or collects any tax or charge, whether under misapprehension
of any provision of this Act or otherwise, which was not payable as tax or charge or which is in
excess of the tax or charge actually payable and the incidence of which has been passed on to
the consumer, shall pay the amount of tax or charge so collected to the Federal Government.
(2) Any amount payable to the Federal Government shall be deemed to be an arrear of tax or
charge payable under this Act and shall be recoverable accordingly and no claim for refund in
respect of such amount shall be admissible.
(3) The burden of proof that the incidence of tax or charge has been or has not been passed to
the consumer shall be on the person collecting the tax or charge.

3. (i) Input Tax [2(14)]

In relation to a registered person, means;
• tax levied under this Act on supply of goods to the person;
• tax levied under this Act on the import of goods by the person;
• in relation to goods or services acquired by the person, tax levied under the Federal Excise Act,
2005 in sales tax mode as a duty of excise on the manufacture or production of the goods, or
the rendering or providing of the services;
• Provincial Sales Tax levied on services rendered or provided to the person; and
• levied under the Sales Tax Act, 1990 as adapted in the State of Azad Jammu and Kashmir, on
the supply of goods received by the person;
(ii) Supply
The term supply is defined in section 2(33) of the Act in the following way:
Supply means “A sale or other transfer of the right to dispose of goods as owner, including such sale or
transfer under a hire purchase agreement and also includes”
• putting to private, business or non-business use of goods produced or manufactured in the
course of taxable activity for purposes other than those of making a taxable supply;
• auction or disposal of goods to satisfy a debt owed by a person;
• possession of taxable goods held immediately before a person ceases to be a registered
person; and
• in case of manufacture of goods belonging to another person, the transfer or delivery of such
goods to the owner or to a person nominated by him:
Provided that the Board with approval of the Federal Minister In charge, may by notification in the
official Gazette, specify such other transactions which shall or shall not constitute supply.

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4. (a) Short paid amounts recoverable without notice:

Where a registered person pays the amount of tax less than the tax due as indicated in his return, the
short paid amount of tax along with default surcharge shall be recovered from such person by stopping
removal of any goods from his business premises and through attachment of his business bank
accounts, without giving him a show cause notice and without prejudice to any other action prescribed
under section 48 of this Sales Tax Act or the rules made thereunder:
(b) Change in the particulars of registration (other than change of business category):
(i) In case there is a change in the name, address or other particulars as stated in the registration
certificate, the registered person shall notify the change in the Form STR-1 to the computerized system,
within fourteen days of such change.
(ii) In case of approval of the change applied for, a revised registration certificate shall be issued through
computerized system, which shall be effective from the date the person applied for the change.
(iii) Where a person is unable to file application for change in particulars of registration directly in
computerized system, he may submit the prescribed application and required documents to the
concerned Commissioner Inland Revenue at RTO, who shall ensure entry of the application and
documents in computerized system within three days.
(iv) The commissioner may, based on available information or particulars and after making such
inquiry as he may deem necessary and after providing reasonable opportunity of being heard to a
person, by an order in writing, make modifications in registration of the person.
(c) In case the person applying for registration as manufacturer is sharing the premises, he shall
provide evidence of:
• demarcation of manufacturing premises for registration, and
• installation of sub-meter by the relevant utility company, in case he does not have
independent industrial utility connection but is using electricity or gas through sub-meter.

5. (a) Residual input tax Vs. Residual input tax credit:

“Residual input tax” means the amount of tax paid on raw materials, components and capital
goods being used for making taxable as well as exempt supplies but does not include the input tax
paid on raw materials used wholly for making taxable or exempt supplies; Whereas

“Residual input tax credit” is that amount of residual input tax which is apportioned to the value of
taxable supplies using the following formula:
Residual Input Tax Credit = Value of taxable supplies × Residual Input Tax
on taxable supplies (Value of taxable + exempt supplies)

(b) Features distinguishing the concept of ‘Zero rating’ from ‘Exempt supply’:

Distinction points Zero Rated Supply Exempt Supply

Taxability Zero rated supply is charged to tax at the Exempt Supply means a supply
rate of zero per cent. which is exempt from tax.

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Products covered Goods exported as notified by FBR or Goods specified by Federal

listed in the Fifth Schedule are charged to Government and FBR and goods
sales tax at the rate of zero per cent. listed in Sixth Schedule are
exempt supplies.
Invoicing Sales Invoice has to be raised for the goods No sales tax invoice shall be
Tax Requirements supplied raised.
Registration A person engaged in zero rated supplies A person engaged exclusively in
has to be registered with the Sales tax supply of exempt goods is not
department. liable to be registered.
Input tax credit Input tax paid related to zero rated Input tax paid related to exempt
supplies is refundable. supplies is inadmissible, therefore,
it is neither adjustable nor
refundable.

(c) Records:
A registered person making taxable/exempt supplies shall maintain the following records of goods
(including zero rated and exempt supplies):
(i) records of supplies;
(ii) records of goods purchased;
(iii) records of goods imported;
(iv) records of zero-rated and exempt supplies;
(v) double entry sales tax accounts;
(vi) Following further records is desired:
Tax invoices, Credit notes, debit notes, Bank statements, banking instruments in terms of section 73,
Inventory records, Utility bills, Salary and labour bills, Rental agreements, Sale-purchase agreements,
Lease agreements, Record relating to gate passes, inward or outward, and transport receipts.
(vii) Such other records as may be specified by the Board.
(viii) The Board may specify to use such electronic fiscal cash registers as are approved by the Board.

6. (a) (i)
A registered person shall not be entitled to reclaim or deduct input tax paid on:
• the goods or services used or to be used for any purposes other than for taxable supplies made
or to be made by him;
• the goods on which extra amount of tax is payable under sub-section (5) of section 3;
• any other goods or services which the Federal Government may by a notification in the official
Gazette specify;
• the goods or services in respect of which sales tax has not been deposited in the Government
treasury by the respective supplier;
• goods which are destroyed with the permission of the collector of sales tax
• purchase from suppliers who are black listed by the Commissioner
• if the payment in case of a transaction on credit is not transferred within 180 days of issue of the
tax invoice
• if payment is not made for the supplies in the business bank account of the supplier

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• fake invoices;
• purchases made by a registered person in case he fails to provide information relating to his
imports, purchases, sales etc. as required by the Board.
• purchases in respect of which a discrepancy is indicated by CREST or input tax of which is not
verifiable in the supply chain;
• goods and services not related to the taxable supplies made by the registered person;
• goods and services acquired for personal or non-business consumption;
• vehicles falling in Chapter 87 of the First Schedule to the Customs Act, 1969.
• services in respect of which input tax adjustment is barred under the respective provincial sales
tax law;
• import or purchase of agricultural machinery or equipment subject to sales tax at the rate of 7%
under Eighth Schedule to this Act; and
• from the date to be notified by the Board, such goods and services which, at the time of filing of
return by the buyer, have not been declared by the supplier in his return or he has not paid amount of
tax due as indicated in his return.
• the goods which are subject to extra tax in addition to normal tax payable at 17%.
• gifts and giveaways.
(ii) The following registered persons may apply for deregistration:
• Who ceases to carry on his business
• Whose supplies become exempt from tax
The Commissioner may de-register a person if that person fails to file tax return for six continuous
months.
(b)
Time limitation of 180 days shall not apply in the given case as it is applicable only in the case of
decrease in output tax and increase in input tax. The above increase of output tax may be declared
without any time limitations.
Since Abid Limited has already accounted for the output tax in the sales tax return for the supplies, it
can issue a debit note in the month of February 2017 when the error was detected, and increase the
amount of output tax in the return for February 2017 by Rs. 20,000.

7. (a) Following exports are outside the purview of zero rating:

(i) Goods which are intended to be re-imported into Pakistan
(ii) Goods which have been entered for export under the Customs Act, 1969 but are not exported
(iii) Goods exported to a country specified by the Federal Government, by Notification in the official
gazette.
(b)
There are two types of refunds
(i) Refund of input tax in excess of 90% of output tax; and
(ii) Refund of input tax related to zero ratings and exports.
In case of (i) a registered person would be required to submit a statement along with annual audited
accounts, duly certified by the auditors, showing value additions less than the limit prescribed.

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The refund of input tax shall be made on yearly basis in the second month following the end of the
financial year of registered person.
In the case of (ii) the refund claim shall have to file in such manner and subject to such conditions as the
Board may, by notification in the official gazette specify.
(c) A revised return may be filed to correct any omission or wrong declaration made in a return subject
to approval of the Commissioner Inland revenue having jurisdiction within 120 days of filing of return.
(d) Monthly adjustment of input tax claimed by a registered person is treated as a provisional
adjustment and at the end of each financial year, a final adjustment is made on the basis of taxable and
exempt supplies made during the course of that year.
(e) If there is a change in the rate of tax,
a taxable supply made by a registered person shall be charged to tax at such rate as in force at the time
of supply.
imported goods shall be charged to tax at such rate as is in force:
 in case the goods are entered for home consumption, on the date on which a goods declaration
is presented.
 in case the goods are cleared from warehouse, on the date on which a goods declaration for
clearance of such goods is presented.
 where a goods declaration is presented in advance of the arrival of the conveyance by which the
goods are imported, the tax shall be charged as is in force on the date on which the manifest of
the conveyance is delivered.
 where the tax is not paid within seven days of the presenting of the goods declaration the tax
shall be charged at the rate as is in force on the date on which tax is actually paid.
If there is a change in the rate of tax during a tax period, a separate return has to be furnished in respect
of each portion of the tax period showing the application of different rates.

8. 2% further tax is not payable in the following cases even if the supplies are made to unregistered
persons:
under section 131 of the Customs Act, 1969 (IV of 1969), but are not exported; or
Have been exported to countries specified by the Federal Government, by notification in the official
Gazette in this regard.
 Electricity energy supplied to domestic and agricultural consumers.
o Natural gas supplied to domestic consumers and CNG stations.
o Motor oil, diesel oil, jet fuel, kerosene oil and fuel oil.
o Goods sold by the retailers to end customers.
o Supply of goods directly to end customers including food, beverages, fertilizers and vehicles.
o Items listed in Third Schedule to the Sales Tax Act, 1990.
o Second hand worn clothing and other worn articles falling under PCT heading 6309.0000.
o Fertilizers.
o Supplies by steel melters, re-rollers and ship breakers operating under Chapter XI of Sales
Tax Special Procedure Rules, 2007.
o Supplies covered under the Fifth Schedule to the Sales Tax Act, 1990.

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 Following is the list of goods which are exported but shall not be charged at the rate of zero percent:
o Goods exported but have been or are intended to be re-imported into Pakistan; or
o Goods which have been entered for export
(b) Where a person files application for sales tax registration as a manufacturer prior to installation of
machinery, for the purpose of import of machinery to be installed by him, temporary registration as
manufacturer shall be allowed to him for a period of sixty days.
After receiving temporary registration, the person shall be allowed to import plant, machinery and raw
materials, etc. as a manufacturer, subject to submission to the customs authorities of a post-dated
cheque equal to the difference in duties and taxes to be availed as a manufacturer.
In case the list of machinery is not provided within sixty days of issuance of the temporary registration,
such temporary registration shall be disabled and the post- dated cheques submitted shall be encashed.
A person holding temporary registration shall file monthly return, but shall not issue a sales tax invoice
and if such invoice is issued, no input tax credit shall be admissible against such invoice.
No sales tax refund shall be paid to the person during the period of temporary registration and the
amount of input tax may be carried forward to his returns for subsequent tax periods.

9. (a)
(i) Where a person files application for sales tax registration as a manufacturer prior to installation of
machinery, for the purpose of import of machinery to be installed by him, temporary registration as
manufacturer shall be allowed to him for a period of sixty days.
After receiving temporary registration, the person shall be allowed to import plant, machinery and raw
materials, etc. as a manufacturer, subject to submission to the customs authorities of a post-dated
cheque equal to the difference in duties and taxes to be availed as a manufacturer.
In case the list of machinery is not provided within sixty days of issuance of the temporary registration,
such temporary registration shall be disabled and the post-dated cheques submitted shall be encashed.
A person holding temporary registration shall file monthly return, but shall not issue a sales tax invoice
and if such invoice is issued, no input tax credit shall be admissible against such invoice.
No sales tax refund shall be paid to the person during the period of temporary registration, however,
the amount of input tax may be carried forward to his returns for subsequent tax periods.
(ii) Features distinguishing the concept of ‘Zero rating’ from ‘Exempt supply’
Distinction points Zero Rated Supply Exempt Supply
Taxability Zero rated supply is charged to tax at the Exempt Supply means a supply
rate of zero per cent. which is exempt from tax.
Products covered Goods exported as notified by FBR or Goods specified by Federal
listed in the Fifth Schedule are charged to Government and FBR and goods
sales tax at the rate of zero per cent. listed in Sixth Schedule are
exempt supplies.
Invoicing Sales Invoice has to be raised for the goods No sales tax invoice shall be
Tax Requirements supplied raised.
Registration A person engaged in zero rated supplies A person engaged exclusively in
has to be registered with the Sales tax supply of exempt goods is not
department. liable to be registered.

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Input tax credit Input tax paid related to zero rated Input tax paid related to exempt
supplies is refundable. supplies is inadmissible, therefore,

it is neither adjustable nor refundable.

(iii) Collection of excess sales tax
o Any person who has collected or collects any tax or charge which was not payable as tax or charge
or which is in excess of the tax or charge actually payable and the incidence of which has been
passed on to the consumer, shall pay the amount of tax or charge so collected to the Federal
Government.
o Any amount payable to the Federal Government shall be deemed to be an arrear of tax or charge
payable under this Act and shall be recoverable accordingly and no claim for refund in respect of
such amount shall be admissible.
o The burden of proof that the incidence of tax or charge has been or has not been passed to the
consumer shall be on the person collecting the tax or charge.

(b) The basis for such satisfaction may inter alia include the following:
(i) non-availability of the registered person at the given address;
(ii) refusal to allow access to business premises or refusal to furnish records to an authorized Inland
Revenue Officer;
(iii) abnormal tax profile, such as taking excessive input tax adjustments, continuous carry-forwards,
or sudden increase in turnover;
(iv) making substantial purchases from or making supplies to other blacklisted or suspended
person;
(v) non-filing of sales tax returns;
(vi) on recommendation of a commissioner of any other jurisdiction;
(vii) any other reason to be specified by the Commissioner

10. (a)
(i) Cottage industries
Cottage industries are required to be registered when their:
o annual turnover from taxable supplies made in any tax period during the last twelve months
ending any tax period does exceed Rs. 10 million or
o annual utility bills for the same period exceed Rs. 800,000.
(ii) Retailers
Those retailers are required to register under the Sales Tax Act who are liable to pay sales tax except
such retailers who are required to pay sales tax through their electricity bill.
(b)
A registered person may be liable for deregistration due to any of the following reasons:
(i) He ceases to carry on his business;
(ii) His supplies become exempt from tax;
(iii) He transfers or sells his business;
(iv) Merger with another person; or

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(v) Failure to file tax return for six consecutive months

(c)
(i) The tax paid on goods purchased by a person who is subsequently registered under this Act or the
rules made thereunder, shall be treated as input tax, provided that such goods were purchased by him
from a registered person against a tax invoice issued under section 23 during a period of thirty days
before making the application for registration and constitute his verifiable unsold stock on the date of
application for registration.
Considering the above, BPL can claim input tax subject to availability of tax invoice and verifiability of
unsold stock.
(ii) Under the STA-1990, time of supply in relation to supply of goods means the time at which the goods
are delivered or made available to the recipient of the supply or the time when any payment is received
by the supplier in respect of that supply, whichever is earlier.
However, in respect of exempt supply, it shall be accounted for in the return for the tax period during
which the exemption is withdrawn from such supply.
Considering the above, BPL has to include advance payment of Rs. 2.5 million received from a registered
person in its sales tax return for the month ended February 2019.
11.(a)
(i) Where any part payment is received in a tax period in respect of a:
• taxable supply, it shall be accounted for in the return for that tax period; and
• exempt supply, it shall be accounted for in the return for the tax period during which the
exemption is withdrawn from such supply.
(ii) Change in the rate of tax
If there is a change in the rate of tax,
• a taxable supply made by a registered person shall be charged to tax at such rate as in force at
the time of supply.
• imported goods shall be charged to tax at such rate as is in force -
o in case the goods are entered for home consumption, on the date on which a goods declaration
is presented.
o in case the goods are cleared from warehouse, on the date on which a goods declaration for
clearance of such goods is presented.
• where a goods declaration is presented in advance of the arrival of the conveyance by which the
goods are imported, the tax shall be charged as is in force on the date on which the manifest of the
conveyance is delivered.
• where the tax is not paid within seven days of the presenting of the goods declaration the tax
shall be charged at the rate as is in force on the date on which tax is actually paid.
If there is a change in the rate of tax during a tax period, a separate return has to be furnished in respect
of each portion of the tax period showing the application of different rates.
(b) Destruction of goods
In order to destroy the goods, the following conditions must be fulfilled:
(i) Prior permission from the Collector of Sales Tax having jurisdiction.
(ii) Goods should be destroyed under the supervision of an inland revenue officer of Sales Tax not below
the rank of an Assistant Collector as may be deputed by the Collector for the purpose.

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(c) Nature of return Filer Due date

(i) Monthly return Registered person 15th of next month following any tax period
(Electronic filing – 18th of next month, where
sales tax payable with the return paid till 15th
day as specified above.)
(ii) Special return Registered or On the date specified by the Commissioner in
Unregistered persons its notice
calling for such return.

(iii) Final return Person applied for On the date specified by the Commissioner.
deregistration
(iv) Annual return Every private or public 30th of September following the year end.
limited company

12. (i) Yes, the Commissioner is justified in issuing the notice to Raheel. According to STR 2006 if the
Commissioner Inland Revenue or any other officer, as may be authorized by the Board, after such
inquiry as deemed appropriate, is satisfied that a person is required to be registered, but does not apply
for registration. He may issue a notice to such person.
(ii) Under the STR 2006, Raheel may submit his response within the specified time, contesting his
liability to be registered. Based on his response, the Commissioner shall grant him opportunity of
personal hearing, if so desired by him, and shall there after pass an order whether or not such person is
liable to be registered compulsorily. He shall cause the said person to be registered through
computerized system.
However, if Raheel fails to respond within the time specified in the notice, the Commissioner shall cause
to compulsorily register him through computerized system.
Features distinguishing the concept of ‘Zero rating’ from ‘Exempt supply’:
Distinction points Zero Rated Supply Exempt Supply
Definition “Zero rated supply means a “Exempt Supply means a
taxable supply which is supply which is exempt from
charged to tax at the rate of tax.
zero per cent.
Products covered Goods exported or listed in Goods specified by Federal
the Fifth Schedule are Government in the Sixth
charged to sales tax at the Schedule are exempt
rate of zero per cent. supplies.
Invoicing Requirements Invoice shall be raised for the No sales tax invoice be
goods supplied but sales tax issued.
shall be charged at
the rate of zero per cent
Registration A person engaged in zero A person engagedexclusively
rated supplies has to be in the exempt supplies is not
registered with the Sales liable to be
tax department. registered.

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Input tax credit Input tax paid related to zero Input tax paid related to
rated supplies is refundable. exempt supplies is
inadmissible, therefore,
neither adjustable nor
refundable.

13. (a) Documents required for the deduction of input tax:

(i) A taxable supply of goods
Tax invoice bearing his name and registration number.
(ii) Goods imported into Pakistan
Bill of entry or a goods declaration showing his name and registration number, duly cleared by the
Custom authorities.
(iii) Goods purchased in an auction
Treasury receipt showing his name, registration number and the payment of sales tax.
(b) Retention of record and documents for six years
A person shall retain the record and documents for a period of six years after the end of the tax period
to which such record or documents relate or till the final decision in any proceedings.
14. (i) The Commissioner Inland Revenue, having jurisdiction, may suspend the registration through
the system, without prior notice, pending further inquiry.
(ii) The suspension of registration shall take place through a written order of the Commissioner
concerned, giving reasons for suspension.
(iii) No input tax adjustment/refund shall be admissible to RA during the currency of suspension.
Similarly, no input tax adjustment/refund shall be allowed to any other registered persons on
the strength of invoices issued by RA (whether issued prior to or after such suspension), during
the currency of suspension;
(iv) The Commissioner shall, within seven days of issuance of order of suspension, issue a show
cause notice (through registered post or courier service) to RA to afford an opportunity of
hearing within fifteen days of the issuance of such notice clearly indicating that he will be
blacklisted, in case–
o there is no response to the notice;
o he has not provided the required record;
o he has not allowed access to his business record or premises; and
o any other reason specified by the Commissioner.
15.
(i) Short paid amounts recoverable without notice:
Where a registered person pays the amount of tax less than the tax due as
indicated in his return, the short paid amount of tax along with default surcharge
shall be recovered from such person by stopping removal of any goods from his
business premises and through attachment of his business bankaccounts, without
giving him a show cause notice and without prejudice to any other action prescribed
under section 48 of this Sales Tax Act or the rules made thereunder:

(ii) Extra tax

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The Federal Government is empowered to levy and collect tax at such extra
rate or amount not exceeding 17% in addition to the amount of sales tax or retail
tax, levied under Sales Tax Act, 1990. This tax shall be levied on the value of such
goods or class of goods, on such persons or class of persons, in such mode, manner
and at time and subject to such conditions and limitations as may be prescribed.

(iii) Capacity tax

On the goods specified in the Tenth Schedule, in lieu of levying and collecting
tax on taxable supplies, the tax shall be levied and collected, in the mode and
manner specified therein on-:
production capacity of plants, machinery, undertaking, establishments or
installations producing or manufacturing such goods; or
fixed basis, as it may deem fit, from any person who is in a position tocollect
such tax due to the nature of the business.
16.
(a)
(i) As this is covered under the definition of supply, this is subject to sales tax by
applying tax % on open market price of these goods.
(ii) The free replacement of defective parts is considered as original supply and nota
separate supply. Therefore, such replacement is not chargeable to tax.
(iii) Payment must be verifiable from the business bank accounts of both the buyer and
the seller. In given matter, company will not be able to obtain input tax on its
payment due to non-verifiability of the said payment from the business bankaccount
of the company.
(iv) Value of supply in this case should be open market price so value of supply does not
include the mark up.
(v) Time of supply is the earlier of delivery of goods or the time when payment is
received so the advance received is subject to sales tax in this month.
(vi) These are exempt from sales tax.
(vii) Input tax paid on purchase of construction material for office building is not
admissible.
(viii Input tax paid on purchase of electronic cash register is admissible andregistered
person shall be entitled to deduct this input tax from output tax.

(b) Temporary registration

 Where a person files application for sales tax registration as a manufacturer without
having installed machinery, for the purpose of import of machinery tobe installed by
him, temporary registration as manufacturer shall be allowed to him for a period of
sixty days subject to furnishing of the complete list of machinery to be imported along
with Bill of Lading or Goods Declaration.
 The temporary registration shall be issued by the computerized system within
seventy-two hours of filing of the complete application.

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 After receiving temporary registration, the person shall be allowed to import plant,
machinery and raw materials, etc. as a manufacturer, subject to submission to the
customs authorities of a post-dated cheque equal to the difference in duties and
taxes to be availed as a manufacturer.
 In case the list of machinery is not provided within sixty days of issuance of the
temporary registration, such temporary registration shall be disabled and the post-
dated cheques submitted shall be encashed.
 A person holding temporary registration shall file monthly return, but shall not issue
a sales tax invoice and if such invoice is issued, no input tax credit shall be admissible
against such invoice.
No sales tax refund shall be paid to the person during the period of temporary
registration and the amount of input tax may be carried forward to his returns
for subsequent tax periods.

17.
Value of
Reason
supply (Rs.)
(i) 1,000,000 Discount can be claimed if it is as per market norms and has
(800,000 ÷ 80%) been shown on tax invoice. Since the amount of discount has
not been shown on tax invoice, it shall be chargeable to tax at
gross amount.
(ii) 900,000 Use of own manufactured items for in-house consumption will
(1,500,000×60%) be subject to sales tax. However, goods locally procured is not
deemed to be supply.
(iii) Nil Time of supply is the time at which goods are delivered or make
available to the recipient. Since goods were not delivered in
February, this was not chargeable to tax in the month of
February.
(iv) 6,000,000 For taxable supplies specified in third schedule, sales tax is
(1000×6,000) charged on the retail price of goods.
(v) Nil Free replacement of defective parts is considered as original supply
and not a separate supply so this was not chargeable to tax in
February return.
(vi) 400,000 Cash discount shall not be deducted while computing value of
supply, so gross amount shall be chargeable to tax.

18. Tier-1 retailers:

Tier-1 retailers are required to be registered under Sale Tax Act, 1990. They shall pay tax at the rate as
applicable to the goods sold under relevant provisions of the Sales Tax Act or a notification issue
thereunder.
Tier-1 retailers shall integrate their retail outlets with Board’s computerized system for real-time
reporting of sales.

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In case a Tier-1 retailer does not integrate his retail outlet in the manner as prescribed during a tax
period or part thereof, the adjustable input tax for whole of that tax period shall be reduced by 60%.
Other than Tier-1 retailers:
Retailers other than those falling in Tier-1 are not required to be registered under Sales Tax Act, 1990.
Tax shall be charged from them, through their monthly electricity bills, at the rate of five percent where
the monthly bill amount does not exceed rupees twenty thousand and at the rate of seven and half per
cent where the monthly bill amount exceeds the rupees twenty thousand and the electricity supplier
shall deposit the amount so collected directly without adjusting against his input tax. The above tax is
other than normal tax of 17%, further tax of 3% and extra tax.
Return of supply
SL shall issue a debit note (in duplicate) in respect goods returned, indicating the quantity being
returned, its value determined on the basis of the value of supply as shown in the tax invoice issued by
the supplier and the amount of related sales tax paid thereon, as well as the following, namely:
name and registration number of SL;
name and registration number of TPL;
number and date of the original sales tax invoice;
the reason of issuance of the debit note; and
signature and seal of the authorized person issuing the note.

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Sales Tax Numerical

1.
Ali Trading Company (ATC)
Computation of Sales Tax liability
Tax Period: August 2014

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2.
Bashir
Computation of Sales Tax Liability Tax Period: February 2015

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3.
Rahbar
Computation of Sales Tax liability
Tax Period: February 2016

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4.
Mulaqat Associates (MA)
Computation of Net Sales Tax Liability
For the tax period February 2016

Sales Amount of
SALES TAX CREDIT (INPUT TAX) Taxable Value Tax Sales Tax
Rate
Taxable goods from registered suppliers [650,000 – 605,000 17% 102,850
45,000]
Furniture for use in marketing manager’s office 45,000 inadmissible -
Taxable goods from un-registered suppliers 150,000 inadmissible -
Exempt goods from registered suppliers 100,000 - -
Import of raw material 280,000 17% 47,600
Purchase of cement [being personal in nature] 75,000 inadmissible -
[150x500]
Advance against purchase of packing material 268,000 17% 45,560
196,010
Add: Credit brought forward from previous month 245,000
Less: input tax on chemicals destroyed (120,000)
125,000
Input Tax for the month (Accumulated 321,010
credit)

SALES TAX DEBIT (OUTPUT TAX)

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Jet fuel to Pak Airways 800,000 0% 0

Taxable goods to registered customers 500,000 17% 85,000
Taxable goods to Cottage Ind. In Bela 200,000 17% 34,000
Taxable goods to un-registered -end consumers 175,000 17% 29,750
Raw material to insurance company [treated as 90,000 17% 15,300
supply]
Taxable goods to Bali Traders 290,000 17% 49,300
Taxable goods on two months credit 52,000 17% 8,840
Free samples of detergent Zeta 65,000 17% 11,050
Debit note issued to Hali Brothers 35,000 17% 5,950
Caramel ice cream [4,000 x 160] 640,000 17% 108,800
Output tax for the month 347,990
Further tax on supplies to cottage Ind. [200,000 × 2%] 4,000
Further tax on supplies to un-registered end consumers-Exempt [175,000 × 0%] 0
Admissible credit (lower of 321,010 or 90% of 347,990 = 313,191 (313,191)
Sales tax payable (347,990 – 313,191 = 34,799) + (4000) 38,799
Input tax to be carried forward [321,010 – 313,191] 7,819

5.
Samaaj Associates (SA)
Computation of Net Sales Tax Liability
For the tax period August 2016

Sales Amount of
SALES TAX CREDIT (INPUT TAX) Taxable Value Tax Sales Tax
Rate
Raw material from registered persons 930,000 17% 158,100
Finished goods from un-registered persons 725,000 inadmissible -
Packing material from registered persons 510,000 17% 86,700
Local machinery from un-registered persons 360,000 inadmissible -
Imports – finished goods 472,000 17% 80,240
Sales tax paid on utility bills [70,000+45,000+68,000] - - 183,000
Purchase of cables and wires 250,000 17% 42,500
Purchase of electric kettles 75,000 inadmissible -
Purchase of liquid nitrogen [more than 180 days] 300,000 inadmissible (51,000)
Input tax claimed on HCL (80,000)
419,540
Add: Credit brought forward from previous month [20,000+10,000] 30,000
Input Tax for the month (Accumulated credit) 449,540
SALES TAX DEBIT (OUTPUT TAX)
Taxable goods to registered persons 2,500,000 17% 425,000
Taxable goods to un-registered persons 875,000 17% 148,750
Taxable goods to registered exporters 625,000 17% 106,250
Self-consumption of packing material 150,000 - -
Shampoo to un-registered distributors [3 × 110,000] 330,000 17% 56,100
Advance against supply of electric shavers 600,000 17% 102,000
Discount coupons to customers (actionable claims) 450,000 inadmissible -

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Short payment of sales tax in April 2016 - - 27,000

Output tax for the month 865,100
Further tax on supplies to un-registered persons [875,000 × 2%] 17,500
Further tax on supply of shampoo to un-registered distributors [3rd schedule item]
[330,000 × 0%] -
Admissible credit (lower of 449,540 or 90% of 865,100 = 778,590 (449,540)
Sales tax payable 433,060
Input tax to be carried forward Nil

6.
Jhangir Ali (JA)
Computation of Sales Tax liability
Tax Period: February 2017
Particulars Value of Tax rate Sales tax
supply
INPUT TAX
purchases from blacklisted person-input not allowed 320,000 Inadmissible -
Purchases from ZA Trader-input not allowed as sales not shown by 30,000 Inadmissible -
ZA
Purchase of machinery- Input to be adjusted against payable only -
Purchase of office equipment-input not 200,000 Inadmissible -
allowed 331,500
Balance purchases from registered person 1,950,000 17%
331,500
Input tax brought forward from January 2017 110,000
441,500
Less input tax inadmissible- W-1
(12,27
OUTPUT TAX 8)
Export to Qatar 100,000 0% 429,222
Supply to associate- Special discount not allowed 400,000 17%
Balance supply to registered 450,000 17% -
customers
68,000
76,500
Supply to cottage industry-3% further tax payable as not end 100,000 17% 17,000
consumer
Balance supply to unregistered person-3% payable as bottom line 450,000 17% 76,500
Goods pledged sold in auction 1,200,000 17% 204,000

17% -
442,000
17% -
442,000
Calculation of tax
liability
Output tax 442,000
Less lower of: 90% of output 397,800
Actual input 429,222 397,800

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Balance payable 44,200

Input tax on machinery (81,852)
Excess input to be carried forward due to fixed (37,652)
asset
3% further tax on sale to cottage industry 3,000
3% further tax on sale to unregistered 13,500
Sales tax 16,500
payable
Sales tax refundable on zero rated 15,426
supplies
Sales tax to be carried forward due to 31,422
90% rule
W-1:
Apportionment of input tax
Taxable supplies 2,600,000
Zero rated 100,000
supplies
Exempt supplies -
2,700,000
Residual input tax (excluding plant) 331,500
Residual input tax on machinery 85,000
Sales tax inadmissible- Refundable on export 12,278
Sales tax inadmissible on machinery- Refundable on 3,148.15
export
15,426
Input tax allowable on fixed 81,852
assets

7.
Cyma Associates
Computation of Sales Tax Payable/Refundable
For the tax period August 2017
Taxable
value Sales tax Sales Tax
rate
------------------- Rupees -------------------
SALES TAX CREDITS (INPUT TAX)
Purchases from registered suppliers
(20,000,000−350,000−800,000) 18,850,00 17% 3,204,500
0
Purchases from unregistered suppliers 1,800,000 inadmissible
Purchases of exempt goods from registered suppliers 400,000 inadmissible
Purchases against which cash deposited in bank account 350,000 inadmissible
Purchases against which discrepancy indicated by CREST 800,000 inadmissible
Fixed assets (Machinery) 1,000,000 17% 170,000
Total input tax 23,200,00 3,374,500
0
Less: Inadmissible/unadjusted input tax (W-1) (424,762)
Input tax for the month 2,949,738
Add: Excess of input tax over output tax of July 2017 75,000

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Accumulated credit 3,024,738

SALES TAX DEBIT (OUTPUT TAX)

Local taxable supplies - to registered suppliers
(15,000,000+500,000−325,000−300,00 14,875,00 17% 2,528,750
0) 0
Local taxable supplies - to unregistered persons 2,800,000 17% 476,000
Local taxable supplies - according to agreement with
Majeed Sons 225,000 17% 38,250
Local taxable supplies - to government official
(325,000+125,00 450,000 17% 76,500
0)
Local taxable supplies - sale of tooth brushes 400,000 17% 68,000
18,750,00 -
0
Exempt supplies - no effect of free samples given 1,700,000 -
Export (zero rated) (1,500,000−500,000) 1,000,000
Output tax for the month 21,450,00 3,187,500
0
Less: Sales return (756,000) 17% (128,520)
Total supplies/Output tax for the month 20,694,00 3,058,980
0
2,753,082

Admissible credit (90% of output tax i.e. Rs. 2,753,082

(3,058,980×0.9) or input tax excluding Fixed Assets 2,876,137 (2,753,082)
(3,024,738−148,601=2,876,137) whichever is
lower.
305,898
Input tax on fixed assets (170,000 x 18,750,000 / 21,450,000) (148,601)
157,297
Further tax on supplies to unregistered persons = 2,800,000×2% 56,000
Sales tax payable 213,297

Sales tax to be carried forward (3,024,738−2,753,082-148,601) 123,055

Sales tax refundable (3,374,500×1,000,000/21,450,000) 157,319

W-1: Apportionment of input tax

Residual input tax 3,374,500
Exempt supplies and export sales (1,700,000+1,000,000) 2,700,000
Total supplies 21,450,000
Inadmissible input tax [(2,700,000/21,450,000)×3,374,500] 424,762

8.
Faiz & Faraz Associates
Computation of sales tax payable/refundable
For the tax period January 2018
Taxable Sales Tax Sales Tax
Value Rate
------------------- Rupees -------------------

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Sales tax credits - Input Tax

Purchases from registered suppliers 2,000,000
Purchases of air conditioners for office use 150,000
1,850,000 314,500
Purchases from unregistered suppliers 450,000 inadmissible -
Purchases exempt goods from registered suppliers 600,000 exempt -
Invoice issued by Taqi Corporation which was declared
blacklisted in -
next period
Sindh sales tax paid on franchise service - inadmissible -
Total input tax 314,500
Less: Inadmissible/unadjusted input tax (68,431)
Input tax for the month 246,069
Opening balance 265,000
Less: Input tax on goods destroyed (45,000×0.17) 7,650
257,350
Accumulated credit 503,419

Sales tax debits - Output Tax

Local taxable supplies 3,450,000
Local taxable supplies - *to Hafiz Brothers (80,000)
Local taxable supplies - to Ghalib Corporation (225,000)
Local taxable supplies - to Parveen Limited – associated
undertaking 100,000
(600,000–500,000)
Local taxable supplies - correction of invoice (540,000– 90,000
450,000)
3,335,000 566,950
- unregistered 1,000,000 U.R 170,000
persons
Local taxable supplies - to Hafiz Brothers* 80,000 U.R 13,600
4,415,000
Export (zero rated) 700,000 Z.R -
Consumer goods supplied to PIA international flight 500,000 Z.R -
1,200,000
Output tax for the month 5,615,000 750,550
Less: Sales return (100,000) (17,000)
Total supplies/Output tax for the month 5,515,000 733,550
Free replacement of defective parts - -
Admissible credit [90% of output tax i.e. Rs.
(733,550×0.9 = 660,195) or input tax Rs. 503,419 (503,419)
whichever is lower]
230,731
Further tax on supplies to unregistered
persons 21,600
(1,000,000+80,000)=1,080,000×2%

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Sales tax payable 251,731

Sales tax to be carried forward (503,419–503,419) -

Sales tax refundable 68,431
[314,500×(700,000+500,000)/5,515,000]

W-1: Apportionment of input tax Rupees

Residual input tax 314,500
Export and zero rated sales (500,000+700,000) 1,200,000
Total supplies 5,515,000
Inadmissible input tax [(700,000+500,000)/5,515,000×314,500] 68,431

9.
Mr. Khan
Computation of sales Tax payable / Refundable
For the tax period August 20X8

Taxable Sales Tax

Value Rate Sales Tax
----------------- Rupees -----------------
Sales tax credits - input tax
Purchases from registered suppliers 25,000,000 4,250,000
Purchases from unregistered suppliers - packing material 9,500,000 inadmissible -
Purchases goods used exclusively for making
exemptsupplies 1,500,000 inadmissible -
Cash payment of electricity bill inclusive of sales tax - 350,000
Fixed assets (Machinery) 2,700,000 459,000

Total input tax 38,700,000 5,059,000

Less: Inadmissible/unadjusted input tax (Note 1) (887,762)
Input tax for the month 4,171,145
Add: Input tax brought forward from previous month 595,000
Accumulated credit 4,766,238

Sales tax debits - output tax

Local taxable supplies - registered suppliers
(15,118,000–4,225,000–2,500,000) 8,393,000 1,426,810
Local taxable supplies - registered suppliers
(4,225,000×0.9÷0.65) 5,850,000 994,500
- unregistered persons 10,150,000 1,725,500
24,393,000 -
Export (zero rated) 5,000,000 -
Exempt supplies (Rs. 4,500,000) - -
Output tax for the month 29,393,000 4,146,810
Less: Sales return - taxable supplies (900,000) (153,000)
Total supplies / Output tax for the month 28,493,000 3,993,810

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Admissible credit (90% of output tax i.e. Rs. 3,594,429 (3,993,810 ×0.9) or input tax
excluding Fixed Assets (4,766,238 – 378,454 = 4,387,784) whichever is lower. (3,594,429)
399,381
Input tax on fixed assets (378,454)
20,927
Further tax on supplies to unregistered persons = 10,150,000×2 203,000
Sales tax payable 223,927

Sales tax to be carried forward (4,766,238–3,594,429 – 378,454 ) 793,355

Sales tax refundable (5,059,000×5,000,000/28,493,000) 887,762

Note 1: Apportionment of input tax

Residual input tax 5,059,000
Total supplies 28,493,000
Inadmissible input tax i.e. Export [(5,000,000/28,493,000)×5,059,000] 887,762

10.
MH Associates
Computation of sales tax payable/refundable
For the tax period August 2019

Taxable Sales Tax

Sales Tax
Value Rate
------------------- Rupees -------------------
Sales tax credits - Input Tax
Purchases taxable goods from registered suppliers
[5,400,000–1,200,000] 4,200,000 17% 714,000
No adjustment will be made for Rs. 1.8 million -
Purchases taxable goods from unregistered suppliers 1,100,000 -
Purchases exempt goods from registered suppliers 1,500,000 -
Un-claimed invoice for 15 Mar 2019 (6 month not
expired) 120,000
Cash payment of electricity bill 95,000
929,000
Fixed assets (Machinery) – used solely for taxable
supplies 900,000 17% 153,000
Fixed assets (Machinery) – used solely for exempt
supplies 1,200,000 17% 204,000
Total input tax 8,900,000 1,286,000
Less: inadmissible / unadjusted input tax (W-1) (279,644)
Input tax for the month 1,006,356
Add: Input tax brought forward from previous month 255,000
Accumulated credit 1,261,356

Sales tax debits – Output tax

Local taxable supplies – registered suppliers
(7,850,000–270,000+720,000) 8,300,000 17% 1,411,000

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Local taxable supplies – unregistered persons

(450,000+365,000) 815,000 17% 138,550
9,115,000
Exempt supplies to unregistered persons 800,000 -
Output tax for the month 9,915,000 1,549,550
Less: Sales return – taxable supplies (90,000) 17% (15,300)
Total supplies / Output tax for the month 9,825,000 1,534,250

Admissible credit (90% of output tax i.e. Rs.

1,380,825 (1,534,250×0.9) or input tax excluding fixed assets
(1,261,356–153,000=1,108,356) whichever (1,108,356
is lower )
425,894
Input tax on fixed assets – for taxable supplies only 153,000 (153,000)
272,894

Further tax on supplies to unregistered persons 450,000 3% 13,500

Sales tax payable 286,394

Sales tax to be carried forward (1,261,356–1,108,356–

153,000) 0

W-1: Appointment of input tax

Residual input tax 929,000
Exempt sales 800,000
Total supplies 9,825,000
Inadmissible input tax – [(800,000/9,825,000)×929,000] 75,644
Add: fixed assets (machinery) used for exempt supplies 204,000
279,644

11.
Taxable Sales
amount tax @
17%
-------- Rupees --------
Registered person (A)
Input tax
Supplies from registered persons 1,500,000 255,000
Less: Inadmissible input tax/adjustable input tax
(255,000×600,000/1,800,000) (85,000)
Input tax for the month 170,000

Output tax
Taxable supplies to registered persons 1,200,000 204,000
Exempt supplies to registered persons 300,000 -
Zero rate supplies 300,000 -
Output tax for the month 204,000

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Admissible credit [Lower of 170,000 or 183,600 (90% of 170,000

204,000)]
Sales tax payable (204,000 – 170,000) 34,000
Sales tax refundable (300,000/1,800,000×255,000) 42,500

Registered person (B)

Since all supplies are zero rated and all purchases are made from registered suppliers, the
registered person can claim the refund of all input tax i.e. 255,000 (1,500,000×17%).

Registered person (C)

Input tax
Supplies from un-registered persons 1,500,000 -

Output tax
Taxable supplies to registered persons 1,000,000 170,000
Taxable supplies to un-registered persons 800,000 136,000
Output tax for the month 306,000

Further tax on supplies to unregistered persons 24,000

(800,000×3%)
Sales tax payable [306,000+24,000] 330,000

Registered person (D)

Input tax

Supplies from un-registered persons 1,500,000 -

Fixed assets (machinery) 2,500,000 425,000
Inadmissible input tax (800,000÷1,800,000×425,000) (188,889)
236,111
Output tax
Taxable supplies to registered persons 1,000,000 170,000
Taxable exempt supplies 800,000 -
Output tax for the month 170,000
Less: Input tax on fixed assets (236,111)
Sales tax refundable/carry forward 66,111

12.
Taxable Sales tax
amount @ 17%
-------- Rupees --------

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Registered person (Taha)

Input tax
Supplies from unregistered persons 3,500,000 -
Purchase of machine 5,000,000 850,000
Less: Inadmissible input tax / unadjustable input tax (850,000)
Input tax for the month -

Output tax
Taxable supplies to unregistered persons 2,000,000 340,000
Exempt supplies to registered persons 3,800,000 -
Zero rate supplies 2,500,000 -
Output tax for the month 340,000

Further tax on supplies to unregistered persons (2,000,000×3%) 60,000

Sales tax payable 400,000
Sales tax refundable [Input tax paid on machines relating to
zero rated supplies (850,000×2,500÷6,300)] 337,302

Registered person (Shan)

Input tax
Supplies from registered persons 11,000,000 1,870,000
Exempt goods 3,000,000 -
Machine for taxable supplies 6,000,000 1,020,000
2,890,000

Output tax
Taxable supplies to registered persons 10,000,000 1,700,000
Exempt supplies to registered persons 5,500,000 -
Output tax for the month 1,700,000

90% of output tax (1,700,000×0.9=1,530,000)(excluding tax on

fixed assets)(2,890,000–1,020,000 = 1,870,000)OR actual input
tax whichever is lower. 1,530,000
170,000
Input tax on machine 1,020,000
Excess of input tax over output tax (850,000)

Sales tax to be carried forward

[340,000 (1,870,000–1,530,000)+850,000] 1,190,000

13.
Taxable Sales tax
amount @ 17%
-------- Rupees --------
Sales tax credits - Input Tax

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Purchases taxable goods from registered suppliers 7,400,000 1,258,000

Purchases taxable goods from un-registered suppliers 1,100,000 -
Un-claimed invoice for 15 Mar 2020 (6 months not expired) 1,200,000 204,000
Cash payment of electricity bill 735,000 124,950
1,586,950
Fixed assets (Machine-A) - used for taxable as well as exempt 1,500,000 255,000
supplies
Fixed assets (Machine-B) - used solely for taxable supplies only 1,000,000 170,000
(export)
Total input tax 12,935,000 2,011,950
Less: Inadmissible/unadjusted input tax (W-1) (409,253)
Input tax for the month 1,602,697
Add: Input tax brought forward from previous month 425,000
Accumulated credit 2,027,697

Sales tax debits - Output Tax

Local taxable supplies - registered persons
(7,500,000–560,000 –590,000) 6,350,000 1,079,500
Local taxable supplies - r.persons at
discount (560,000/0.8×0.9) 630,000 107,100
Local taxable supplies - r.persons at discount -
wrongly 950,000 161,500
recorded
Local taxable supplies - unreg. persons 1,300,000 221,000
Export to Saudi Arabia 500,000 -
9,730,000
Exempt Supplies to un-registered persons 1,000,000 -
Output tax for the month 10,730,000 1,569,100
Sales return - Exempt supplies (50,000) -
Total supplies / Output tax for the month 10,680,000 1,569,100
Admissible credit (90% of output tax i.e. Rs. 1,412,190 (1,569,100×0.9) or
input tax excluding Fixed Assets (2,027,697–231,203=1,796,494) whichever is (1,412,190)
lower.
156,910
Less: Input tax on fixed assets - Machine "A" only (255,000–23,797) (W-1) (231,203)
Sales tax to be carried forward (fixed assets portion only) (74,293)
Further tax payable on supplies to unregistered persons [(1,300,000– 38,145
28,500)×3%]
Sales tax to be carried forward (2,027,697–1,412,190–231,203) (384,304)
Sales tax refundable (export) (W-1) (74,295+170,000) (244,295)

W-1: Apportionment of input tax Fixed assets

Supplies A B Total
Residual input tax 1,586,950 255,000 170,000

Taxable supplies (Local) 9,230,000 9,230,000

Zero rate supplies 500,000 500,000
Exempt supplies (1,000,000–50,000) 950,000 950,000
Total supplies 10,680,000 10,180,000 500,000

Inadmissible 141,161 23,797 - 164,958

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Unadjusted and refundable 74,295 - 170,000 244,295

Total 215,457 23,797 170,000 409,253

14.
Hadi Associate
Computation of Sales Tax Payable / Refundable
For the tax period February 2021

Taxable Sales tax

amount @ 17%
SALES TAX CREDITS (INPUT TAX) -------- Rupees --------
Taxable goods from registered customers 1,890,000
Less: Goods purchased from Haq Enterprises - Suspended (100,000)
Goods purchased in cash (85,000)
Goods purchased from AB traders, not declared in its return (50,000)
1,655,000 281,350
Taxable goods from un-registered customers 1,000,000 -
Packing material from un-registered person 445,000 -
Sales tax paid on electricity bill - September 2020 90,000 13,000
294,350
Fixed assets purchased 2,500,000 425,000
Total input tax 719,350
Add: Credit brought forward from previous month 415,000
Less: Inadmissible / un-adjustable input tax (W-1) (199,634)
934,716
SALES TAX DEBITS (OUTPUT TAX)
Taxable goods to registered customers 2,750,000
Add: Discount given to associated undertaking 75,000
Less: Goods against which payment was received in Nov 20 (120,000)
2,705,000 459,850
Taxable goods to un-registered customers 1,050,000 178,500
Export - taxable goods (Zero rated) 1,500,000
Taxable supplies goods used for business promotion 150,000 25,500
Total supplies / output tax for the month 5,405,000 663,850
Admissible credit (90% of output tax i.e. Rs. 597,465 or input tax excluding
fixed assets (627,662) whichever is lower. (597,465)
Sales tax payable 66,385
Less: Input tax on fixed assets – machine [Taxable supplies portion only(W-1)] (307,054)
Sales tax to be carried forward – fixed assets 240,669
Sales tax to be carried forward – taxable supplies (627,662–597,465) 30,197
270,866

Further tax payable on sale to un-registered person (1,050,000– 27,600

130,000=920,000×3%)

Sales tax refundable [117,946+81,688(W-1)] 199,634

No adjustment would be made in the sales tax return on account of slow moving stocks

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W-1: Apportionment of input tax

Total supplies relating to
Fixed assets Taxable supplies
-------------------- Rs. --------------------
Local taxable goods 3,905,000 307,054 212,662
Export - goods 1,500,000 117,946 81,688
5,405,000 425,000 294,350

15.
Mehrban Associates
Computation of Sales Tax Payable/Refundable
For the tax period August 2021
Taxable amount Sales tax @ 17%
-------- Rupees --------
Sales tax credits - Input Tax
Taxable goods from registered persons 4,960,000 843,200
Materials exclusively used for exempt supplies (296,000) (50,320)
Materials exclusively used for zero rated (675,000) (114,750)
Goods purchased on cash (150,000) (25,500)
500 kg of tea covered under Third Schedule to be taxed at retail
price 90,000 15,300
[450,000(500×900) 360,000]
Goods sold to unregistered who have not provided their CNIC (275,000) (46,750)
or NTN
3,654,000 621,180
Taxable goods from unregistered persons 1,400,000 -
Exempt goods from unregistered persons 520,000 -
Sales tax paid on electricity bill 959,450 154,250
Input tax related to purchase made in February 2021 (It
may be
claimed in August return being input tax can be claimed in six 186,000
succeeding tax periods)
961,430
Fixed asset purchase – Machine A 2,000,000 340,000
– Machine B 3,000,000 510,000
Furniture and fittings (inadmissible) 1,000,000 -
Total input tax 1,811,430
Less: Unadjusted/inadmissible input tax (W-1) (726,870)
Input tax for the month 1,084,560
Add: Input tax b/f from previous month 1,137,580
Accumulated credit 2,222,140

Sales tax debits - Output Tax

Local taxable goods to registered persons 8,650,000 1,470,500
Taxable goods to unregistered persons 1,560,000 265,200
300 kg of tea covered under third schedule to be taxed at retail
price 33,000 5,610
[300×(900‒790)]
Taxable supplies local 10,243,000 1,741,310
Export of taxable goods to UAE (zero rated supplies) 1,300,000 -
Export of exempt goods to UAE (zero rated supplies) 1,900,000 -
Total taxable supplies / output tax 13,443,000 1,741,310

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Exempt goods to local unregistered persons 1,740,000 -

Total supplies / output tax for the month 15,183,000 1,741,310

Admissible credit (90% of output tax i.e. Rs. 1,567,179 (1,741,310×90%) or

input tax (1,567,179)
excluding fixed assets i.e. Rs. 1,786,195 [2,222,140‒435,945(W-1)], whichever is
lower.
Sales tax payable 174,131
Less: Input tax on fixed assets – Machine B (Taxable supplies portion only) (W-1) (435,945)
Sales tax to be carried forward (fixed asset portion only) 261,814
Sales tax to be carried forward (2,222,140‒1,567,179‒435,945) 219,016
Total sales tax to be carried forward 480,830
Further tax payable on supplied to unregistered persons
(1,560,000‒ 237,000(300×790))×3% 39,690

Sales tax refundable on zero rated supplies:

Input tax on material exclusively used for export items (675,000×17%) 114,750
Input tax computed in working 1 542,633
657,383

W-1: Apportionment of input tax

Fixed assets
Supplies A B Total
---------------------------- Rupees ----------------------------
Residual input tax 961,430 340,000 510,000

Zero rate supplies 3,200,000 3,200,000 -

(1,300,000+1,900,000)
Exempt supplies (Local) 1,740,000 1,740,000
Taxable supplies (Local) 10,243,000 10,243,000
Total supplies 15,183,000 3,200,000 11,983,000

Unadjusted/refundable (for zero rated

supplies) 202,633 340,000 - 542,633
Inadmissible (for exempt supplies) 110,182 - 74,055 184,237
Total unadjusted/inadmissible 312,815 340,000 74,055 726,870
Admissible input tax on local taxable
goods 648,615 - 435,945 1,084,560

16.
Kazmi Traders
Computation of tax payable / refundable
For the tax period February 2022
Taxable Sales Tax
Amount @ 17%
--- Rs. in million ---

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Input Tax
Taxable goods from registered persons 256 43.52
(320×80%)
Taxable goods from unregistered persons 32 -
Exempt goods from registered persons 56 -
Electrical and sanitary fitting 17 -
Electricity bills 1.36
44.88
Less: Refundable input tax (for zero rated) (W-1) (15.82)
29.06
Output Tax:
Taxable goods to registered persons 180 30.60
(200×90%)
Exports 98 -
30.60
Admissible credit (90% of output tax i.e. 27.54(30.6×90%) or input tax i.e.
Rs. 29.06, whichever is lower 27.54
Sales tax payable 3.06
Less: input tax on fixed assets (taxable supplies) (W-1) (9.25)
Sale tax to be carried forward (fixed asset portion only) 6.19
Sale tax to be carried forward (29.06–27.54) 1.52
Total sale tax to be carried forward 7.71
Sales tax refundable on zero rated supplies [15.82(W-1)+5.03(W-1)] 20.85

W-1: Apportionment of input tax

Input tax on plant and

Value of supply Residual input tax
machinery
180 9.25 29.06
98 5.03 15.82
278 14.28 44.88

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